Credit ratings are based on your credit report. When a
financial institution - a bank, credit card company, or
another type of company - loans you money, they will
report to an agency how well you are keeping up with your
payments. If you are keeping up with your payments, all is
well. If not, then negative feedback is given to the
agency and may stay on your credit report up to seven
years.
However, before a financial institution will report to an
agency, they will make an effort to contact you to help you
get caught up on your payments. If you respond and get
back on track, they will monitor you more closely, but it
is possible that they will not report you to the credit
agency. However, if you do not respond to their warnings,
the financial institution will sell your debt to a
collection agency. This is called "writing off the loan."
The collection will purchase the bad debt at a cost lower
than the amount due. It is better for the financial
institution to get some of the money as opposed to none at
all. When this happens, the financial institution reports
this to the credit bureau, and you will be given the lowest
possible rating on your credit report.
It is vital that you try to avoid this "writing off" of
your debt. If you are at the point that your debt is in
the hands of a collection agency, it is imperative that
you respond as soon as you have been contacted by the
collection agency. All is not lost at this point. Before
making payment arrangements with the collection agency
try calling the creditor one more time. In many cases,
if you agree to pay the full amount immediately, they will
remove the "gone to collection" mark from your credit
repair. This is a key ingredient to fix poor credit.
If the creditor is unwilling to do this, you have no choice
but to work with the collection agency. Keep in mind
that at this point, your credit rating can not get any
lower. You have no where to go but up--provided you
are diligent in trying to fix your poor credit. Just a
warning here. The collection will be very aggressive
to collect the debt, often demanding that the amount
be paid in full, even implying that they will take you to
court if you do not.
One thing that you may not know about collection
agencies is that they probably bought your debt at about
half its value, so any payment over that is a profit for
them. Try to come to terms as quickly as possible, even
arranging to make a lump sum payment if you can arrange it.
Their goal is to recoup their money, make a little profit,
and close the case so they can move on and not drag things
out.
Just a reminder, always try to deal with the creditor
holding your debt FIRST. If things have progressed to
the point of a collection agency, don't ignore their
calls, but work on a payment plan as quickly as possible.
To Blast Your Credit Score Through the Roof and Fix Poor Credit, and for this article's Part 1 or Part 2, please visit this credit information site: http://www.squidoo.com/fix-poor-credit/
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