Finance Globe

U.S. financial and economic topics from several finance writers.
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A Good Reason to Pay a Collection Quickly

Numerous businesses use debt collection services to help recoup the cost of unpaid debts. For example, if you cancel your cable service and don’t pay the last month’s bill, your ex-service provider may send you a few bills then send the unpaid bill to a collection agency. Because of debt collector’s bad reputation or perhaps the insignificance of the bill, many consumers often put off paying these collections. Besides personal responsibility, what need do you have to pay a bill for a service you no longer use?

You can ignore a debt collector’s calls and letters without much of a hassle. However, debt collectors may go beyond calls and letters in their attempt to collect a debt from you. They may add the account to your credit report.

Unfortunately, collection accounts are among the worst types of accounts for your credit report. They indicate that you’ve been extremely late on a payment. Since payment history is 35% of your credit score, a seriously late payment is painful. Not only does a collection cause your credit score to drop, you may have other applications denied, especially if the collection is unpaid. And the negative stigma from the collection will follow you around for seven years. That’s the amount of time the Fair Credit Reporting Act (FCRA) allows negative items like debt collections to remain on your credit report.

There’s a chance you can avoid the negative consequences of having a collection account on your credit report. Rather than dodge the collector for several months or years, pay the collection as soon as you’re contacted about it. According to an article from Business Insider, not every debt collector reports to the credit bureaus immediately. This gives you a little small window of time to take care of the debt without having it affects your credit report.

When a debt collector calls you about a new debt, ask whether the account has been reported to the credit bureaus. In cases that it hasn’t been reported (you can confirm by checking your credit report yourself), make sure that paying immediately will keep the account from being added to your credit report. You may even be able to pay the original creditor, in our example the cable service provider, if the collector has only recently been assigned the debt.

This only works with accounts and services that aren’t reported to the credit bureaus regularly. That includes things like medical bills, utilities, cable, and phone services. With credit cards and loans, each monthly payment is reported to the credit bureau. By the time an account is about to be sent to a collection agency, your credit history has already been hit with several months of late payments.

Don’t pay debt you believe doesn’t belong to you. You have no obligation to pay debts that aren’t legitimately yours. Instead, send the collection agency a debt validation letter requesting proof that you’re responsible for the debt. Meanwhile, the collector cannot collect from you or add the account to your credit report until they’ve sent the proof you asked for. If the debt is erroneous, it should never appear on your credit report. A dispute with the credit bureau can resolve inaccurately reported collection accounts.

Source: Business Insider
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Thursday, 02 February 2023

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