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UNDERSTANDING THE IMPACT OF ACCOUNTS THAT GO INTO
COLLECTIONS
Even if you miss just one payment, you are risking
the chance of putting yourself deep into debt. Also,
your creditor is going to assume that you have broken
your agreement with them to pay your responsibility on
time.
Your creditor will likely look to work out a payment
plan for you before the send your account to a
collection agency.
If your creditor is a bank, you need to contact them
within 30 days of your delinquency. After 30 days
passes, banks have much less flexibility to work a deal
with you as a result of regulations.
Banks need to manage their risk and would match rather
work with you than have unpaid loans showing on their
balance sheets.
Avoiding your creditor is the worst thing you can do. It
does not matter if you fell behind as a result of an
illness or job loss. Ignoring your debt will only result
in the creditor taking aggressive action against you by
submitting your account to a collection agency.
But, before your account is sent to collections, your
creditor must provide you with a "Mini-Miranda," stating
"This is an attempt to collect a debt and any
information obtained will be used for that purpose." You
will receive this message either by phone, mail or
telegram.
An account that has gone to collections will show on
your credit report as charged-off or place for
collections. Also, when your debt is sold to a
collection agency, the original creditor no longer has
any ties with the debt. In addition, a new record will
show up on your credit report as a debt being paid to a
collection agency. Both of these records will remain
part of your credit for a minimum of seven years. You
must pay this debt ASAP if you want to see it disappear
after seven years. Obviously, your credit score is going
to be adversely affected if you have an account that
goes into collections.
Before allowing your accounts to go to collections, you
should contact your creditor to see if you can settle
with them.
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