How Collection Accounts Hurt Credit Scores
Many lenders say that they overlook Medical Collection Accounts in their lending decisions. When they say that, they mean that in order to lend you money, they will not require that you pay off or down those old collections.
What they do not say is that those collections still lower your Credit Score, allowing the lender to, in good conscience lend to you at a higher interest rate, thereby raising your payment. You are paying more for a loan than you normally would.
This impacts your credit in two ways, those old collections remain, keeping your score down, and you are making higher monthly payments due to those high interest loans .. this raises your debt to income ratio. A debt to income ratio is a percentage of your debts, current and old collections combined, divided by your income .. expressed as a percentage, also called DTI.
Cleaning up those old Collections can Lower your DTI, making you a better candidate for loans .. you want a lower DTI to qualify for better loans. Mortgage lenders used to consider loans with a 40% DTI. Those days are gone.
Low Credit Scores and High DTI ratios put a lot of people in ARM Adjustable Rate Mortgages in the past few years. You have probably heard a thing or two about ARM loans lately in the news.
Collections may remain on your Credit File for 7 years after they are marked paid. If you decide to pay them off in an effort to raise your score, make sure that you are paying the right Collection Agency, the account may have been sold last night to another agency, who will be demanding your money tomorrow. We recommend paying Collection Agencies with a Cashiers Check, Money Order, or some other third party type of payment. Never let them have a Bank Account Number, Debit Card Number, or anything of the sort, there may be fine print allowing them to obtain full payment from you.. especially in the case of a settlement of a Collection.
CCFG has seen all types of Collection horror stories. We had a Client who had been hit with a $97 hospital bill. The same Collection Agency lengthened the account number by a few digits, raised the balance, and re-reported the account every few months for two years. By the time we saw the report, the $97 bill had grown to $987, in addition to the multiple other times it reported .. it equaled about $2200. We got that cleared up for her, and we can do the same for others, too.
Look at the actual results on the Results Page to see some replies from our actual clients .. they show all types of items deleted to raise the Credit Scores of our Clients.
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Collection Agencies
What they can (and can't) do..
They can call you relentlessly regarding the payment. They can write you demanding payment. You can stop the calls with a letter using the phrase "cease telephone contact". Sometimes it works on a recorded call, but it's best in a letter. They can take you to court, get a Judgment, and even garnish your wages to satisfy a debt. Medical and Credit Card Collections usually do not end in a Garnishment, but they can. If your income is fro Social Security, Disability, or certain other sources, you are free from worry about garnishment, but if you own real estate, they can get a judgment against the property.
Remember, if you actually talk with a rep from a collection agency, they are usually paid a minimum per hour, and they get commission on what they collect. Don't let them hassle you too badly. Their threats and intimidation on the phone are strong, but have no legal recourse. Remember that, since what they say on the phone has little legal standing, so do their guarantees or promises. Believe only what you see in writing.
They can not send you to prison, take your eldest child, foreclose on your Mothers house to satisfy your old Credit Card bill. We actually heard the last one, Mom was not on the card, but they were going to take Mom's house. Daughter was our Client, and she called us almost in tears with this one.
How Collection Agencies Work:
Lets say you have an old debt of $100. The original creditor sells the debt for about $25, and writes $75 off their taxes as bad debt. Then, the Collection Agency adds interest or service charges, marking it up to $175 or so. Now, they have invested $25 in a note that has a face value of $175. If you don't pay them, they re-sell the item to another agency to recover their investment, and now have a tax write off of $150. There is a lot of room for negotiation with a collection agency. We recently saw a collection letter where the collection debt was just under $60,000, for which the Agency was willing to take about $7,000.
Break the Cycle ..
If you choose to pay them off, save all correspondence forever, you may need proof that you paid the Account. Do not ever allow Collection Agencies electronic access to your checking account, or pay with a check or credit card. The fine print may allow then to collect the rest of the balance at will, draining your bank account or maxing out your card. Pay them via money order. They sometimes forget to mark a collection paid, and it may come back under another name. Make sure you are paying the right Agency, your note may have been sold to another Agency last night. The old Agency will be glad to take your money.. and the new one will be calling tomorrow. If you pay them off, or settle the balance, and they actually report it as paid, it will automatically drop from your Credit Report .. in 7 years. If you can't wait that long, we can help.
We have found that, by removing the collections, paid or unpaid, usually the re-reporting cycle breaks, and the debt tends to no longer be re-sold and re-reported on your Credit File. To see what can be done, go to the Reply Samples Page, where you can see actual items that have been removed from our Clients Files.
If you have a lot of collections, it may be wise to check out our Debt Settlement Programs. These collection accounts are great candidates for negotiation by the pros!
We do not share any of your personal information with any outside source. CCFG Credit Repair will not sell your name, address, phone number, or email address to anyone for any reason. And we won't call you or send you an email every week to entice you to join up.
