Welcome back to our handy page of making dull, confusing credit report information easily understood. Unfortunately, it’s still going to be dull. Sorry, but the old cliché of not being able to put lipstick on a pig applies here. Collections are awful. No one likes learning about them, as they are the cause of many migraines and ulcers. There’s no way to make this exciting reading… but we’ll do our best.
What is a Collection?
This one starts out easy. Fail to make your payments on anything from medical bills, to credit cards, to your car, to anything and everything that has a payment plan, and you get sent to ‘Collections.’ Now, while the definition is relatively easy, the concept of Collections just gets muddier from here on out.
What is a Collection Company?
Let’s explain this using a hypothetical scenario (it’ll be easier on everyone, trust us): You have a student loan through Galactic Student Loans. After a few setbacks, you fail to make the payments for a while. Galactic will spend a few months trying to collect what they’re owed. At some point they decide it is no longer worth their resources to try and collect. And then in walks Super Duper Collections! They are a third party collection company who buys your debt from Galactic Student Loans for sometimes pennies on the dollar. Your $10,000 student loan debt then gets sold to a third party collection company for a few hundred dollars. This third party collection company then comes after you with everything they have to try and collect the debt. This is why you sometimes see a collection company on your credit report that you’ve never heard of.
How many points do Collections cost my credit score?
Collections on your credit report are among the most damaging items to your credit score. Two essential factors go into determining how much the damage is. How old is the collection? And how much is it for? The more recent an account has been assigned to collections, the more it’s hurting your score. The same goes for the amount owed. A $25 parking ticket you forgot to pay isn’t as bad as the $3,500 medical collection.
I thought my medical bills weren’t allowed to report?
This is one of the most frequent questions we get. While current medical bills do not appear on credit reports, the original creditor will then sell your debt to one of those third party collection companies. Sometimes the hospital even has an in-house third party collection division. In simplest terms – when the medical debt becomes a Collection, it can start reporting on and affect your credit score.
These are just a few of the basics in regards to Collections. If you have more specific questions, please contact us at (866) 488-2066 to speak to one of our Credit Experts. When it comes to fixing your credit and improving your credit score, we can answer all of your questions much more in-depth than a short blog post can.