A collection account can be placed on credit reports for something as minor as not paying a parking ticket, library book fee, or a magazine subscription. If a creditor is not paid within a period of time the debt owed by the consumer gets passed on to a collection agency. Many of these agencies purchase or borrow the debt hoping to make a profit by collecting a commission once the debt is paid by the consumer. Most consumers do not realize that just because the debt is paid it does not mean the delinquent account will suddenly correct itself. In many cases, if the debt is a small amount of money, paying it off could reduce the score even further.
Medical collections, for example, are a popular cause of credit score reductions since many very responsible consumers expect their health insurance to cover the costs of service and send payment in a timely manner to the physician. Sometimes the physicians billing department makes an error as well and the health insurance company may not receive the claim, kicking the outstanding invoice back to the insured. Once the insurance claim is made we usually forget about it thinking all is well. When a thin letter arrives in the mail with an unrecognizable return address most would shred it thinking it is junk mail. Months go by and what wasn’t covered by the insurance company is now a collection being updated on credit which can easily cause an excellent 780 Fico score to drop down to a 680. This could mean a much higher rate or a rejection for financing.
Besides medical collections, parking tickets, magazine subscriptions, and library book fees, there are utility bills. Cell phone services, land line phone services, TV, and wireless bills that consumers refuse to pay due to poor service, erroneous overcharges, or just not agreeing with the statement, can wreak havoc on credit. These types of collections can be very difficult to remove depending on the situation. In many cases they could be as little as $60 yet end up costing over $100,000 in extra interest and fees on a mortgage. It makes sense to pay the extra $60 before it becomes a collection and hurts credit scores, even if you don’t agree with the creditor.
There are many situations that could cause credit score drops that most would not even think of.
1. An individual finds they are leaving a roommate situation early or a couple is splitting and the person leaving neglects to take their name off the cable or FIOS account. Later the bill is left unpaid by the user of the service and the collection is updated on the account holders credit.
2. Once an account is closed if there is an outstanding fee that was generated later on with the utility company if a new address is not given to the service provider and the final bill is generated the invoice will never be received by the account holder who has moved on.
3. A ticket is generated through a camera violation. The driver shreds the ticket thinking it is frivolous junk mail.
These situations occur often and most of us just don’t realize how much this can cost us. In most cases we are able to fix these problems. If you are in a situation like this do not rush to pay the collection until you speak with one of our experts.
If you have experienced something like this in the past please share!