What Will It Do if You Have a Collection Agency on One of Your Credit Reports?

Your credit reports play a vital role in your ability to obtain credit and competitive rates on the loans you seek or currently have. Whenever one of your three consumer credit reports has a negative item on it, this can affect how creditors view your credit worthiness and impact future and current credit terms.

Credit Reports

Every consumer who has ever paid a bill, applied for loan or used any kind of consumer credit has a credit report that details the consumer's history as a user of credit. Three consumer credit bureaus, TransUnion, Equifax and Experian, keep and maintain these reports. Creditors use credit reports to determine if you are a good candidate for a loan or other form of credit.

Score

Your credit report is the basis for companies that determine credit scores. These scores are numerical representations of your trustworthiness as a creditor. While each company has its own way of determining how a collections agency action impacts your credit score, this generally lowers your score significantly. For example, Yahoo Finance reports that a 30-day late payment alone appearing on any one of your reports can lower your credit score 60 to 110 points.

Collections

A collection agency can get involved in your debt at various points in time. Typically, a creditor uses persuasive efforts to try to get you to pay. If these efforts don't work, the creditor may refer or sell the debt to a collection agency. This usually happens after significant time has passed, but the damage done by your late payments before referral to an agency also negatively impacts your report.

Mistakes

Even if a collection agency action appears on your credit report in error, it will negatively affect your credit score. You have the right to demand that the credit bureau remove any errors on your report by contacting either the credit-reporting agency upon whose report the information appears, or by contacting the credit agency itself. You will need to provide written evidence as to why the report is in error to have the mistake corrected.