Collections, Credit, and Mortgages

Summary

Your credit report is a basic snapshot of your financial management of credit.

The credit report includes all kinds of details about your finances, including any collections or bad debts you may have or have had.

Items that are listed as delinquent on your credit report can prevent you from being approved for a mortgage, getting a good rate, or being able to cash out as much as you want to on a property.

Basics

Collections are listed on your credit report:

• by individual creditor

• by the details of the collection: number of times late, number of days late, etc.

By Individual Creditor

Your credit report will list your delinquent payments and collections. This information generally remains on your credit for several years.

Items may be incorrectly listed as being paid late or as collections. You can work to clean these up and correct your credit report.  The easiest way to do this is to get a copy of your credit report from the three top credit reporting agencies.  This will allow you to scour your reports for errors.  If you find errors, ask the creditor(s) to write a letter affirming the error(s) and submit the letters to the credit reporting agencies.

If the collection is a genuine item you will be able to pay it off and the outstanding balance on that credit line will be reduced to zero.

The Details of the Collection

The details of the collection include:

• the creditors name

• the outstanding balance

• how many days it has been late (30 days, 60 days, 90 days, or more)

• contact information for the creditor

• account number for the debt

Your credit report may list creditors you are unfamiliar with. It may be a name you simply don't recognize. This is usually because the creditor is a collection agency that has purchased your bad debt from a previous creditor. For example, your delinquent cell phone bill may be sold off to a collection agency and the item will then be listed under their name, not the cell phone company's name.

Time and Credit Scores

Your credit score may be hurt the longer a collection remains on your credit report.

Just because a creditor has given up on collecting from you doesn't mean it won't still hurt your credit unless is it over 6 years old (more or less depending on your state).

You are much better off taking care of these items as soon as possible.

If a collection is a legitimate item and you pay it off, the item will have an outstanding balance of zero (listed as paid off). It will still show up on your credit report, but the process of helping your credit may start with this.