How Collection Debt and Collection Agencies work and why it is bad for your Credit!


When borrowers or service users (utility or phone bills etc..) go to apply for and use credit, credit lenders count on your ability to repay back the debt and make those payments on time. When accounts become past due for an extended period of time (60, 90, or 120 days), the original creditors or vendors look to cut their loss and sell your debt account to a collection agency for a lower amount - in some cases as low as $0.04 for every $1 of debt that you owe- but it would depend on the type of credit debt that you owe with some debt being worth more or less pending on how long it has gone unpaid; however, this does not mean that you are off the hook for the full amount of debt that you owe just because the collection agency is buying your debt from your original creditor at a lesser price.

Having debt in collections let alone missing payments or not paying creditors in the first place can have a huge impact on your credit bureau and score, which could prevent your access to future credit. Many borrowers don’t even realize that they even have debt in collections that could have been caused by something as simple as a small unpaid credit card balance owing; these missed payments would compound overtime making it difficult for your score to rise. Think of collection debt as an open bleeding wound that will continue to impact your credit score until it is closed up.

We recommend our clients in our Rent to Own program to keep on top of their credit history and review their report regularly to keep their credit clean and shock free.

Here are some free services below that allow you to check your credit report and score on each bureau, it is a “soft pull” and will not impact your credit in anyway:

If you are aware of some debt that is in collections and have been turned down by the bank when applying for a mortgage, we may be able to help you with our Rent to Own solution towards home ownership. In the program we would help you get into your own home sooner, while we work with you to get your credit up to where it needs to be to meet your end goal of qualifying for a mortgage and purchasing the home.

If you are interested and want to find out more, please APPLY HERE.