Credit Scores
Credit scores, or FICO scores, are determined by using a variety of factors including payment history, amount of debt and number of inquiries. All of this information is generated into a report accessible by certain businesses and agencies. A credit report contains identifying information, credit accounts, credit inquiries, collection actions and public records, such as bankruptcy or liens. A credit inquiry is a request from a company for a copy of your credit report.
Different types of credit inquiries have a different impact. Soft inquiries are personal requests, existing creditor requests or credit bureau reviews and generally do not affect your score. Hard inquiries, such as credit requests or collections, can have a definite impact. Credit inquiries can remain on your report for up to two years, but the prior six months are most scrutinized.
Collection Agency Inquiries
A collection agency typically works as an agent of the original creditor to obtain payment of the outstanding debt for a percentage or fee. A credit inquiry by a collection agency has a definite negative effect on your credit report. General credit inquiries typically are not harmful to your credit score, unless there have been numerous inquiries in a short period of time. Collection agency inquiries differ because the inquiry shows inability or unwillingness to repay debt. Similar to collection agencies, a review by the Internal Revenue Service typically means tax collection or a lien, and has a negative impact.
Protecting Your Credit Score
According to the Fair Credit Reporting Act, a business must have a legally acceptable reason to access your credit report. Legally acceptable reasons are credit decisions, review or collection of an account, employment, insurance underwriting, government license, court order and federal investigation. You are allowed one free credit report per year, and should review it annually for any discrepancies or unauthorized actions. Inquiries from collection agencies for expired debts are not permissible inquiries and should be disputed. The FCRA advises that disputes should be filed with the reporting company, as well as the credit bureau. Both entities are required to investigate disputes.
Avoiding Collection
In order to keep collection agency inquires to a minimum and avoid any inquiries regarding bankruptcy or liens, dealing with the creditor as soon as repayment becomes burdensome is recommended. Contact your creditor and discuss options, such as negotiating lower payments.
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