Your credit report is one of the biggest assets that your creditors have at their disposal in the event that your account becomes delinquent or reaches collection status. In order to motivate debtors to make payments, many creditors will list overdue debts and collection accounts on the debtors’ credit reports.
While many debtors are not initially concerned with the status of their credit reports, there comes a time in most of our lives where having good credit comes in handy. You might decide that it is time to purchase a house or a new car, and at that time, your credit report will suddenly become extremely important.
While it makes perfect logical sense that paying off old debts will have a positive impact on your credit score, some types of debt will have a bigger impact than others. The actual formula that is used to calculate your FICO score is not public information, there is a plethora of advice available on the topic that can paint a pretty clear picture of what are the most important areas to focus on.
Overdue accounts that remain open are understood to have the largest negative impact on your credit score. That makes them the perfect place to begin your credit score improvement plan. The more overdue an account is, the bigger the impact it will have on your credit score.
That means that an account that is 90-days overdue will have a bigger impact than an account that is 30-days overdue. If any of your current accounts have sent a final demand letter and are about to send the account to collections, they should be first on your list of priorities.
An excellent strategy to improve your credit score would be to begin paying off your active, but overdue accounts starting with the most overdue. Simply bringing each of your overdue accounts current can have a tremendous impact on your credit score.
Where credit score issues get tricky is when it comes to collection accounts. Once an account goes to collections, simply paying it off is not enough to remove it from your credit report. In fact, paying off an old collection debt may actually lower your credit score in the short-term.
However, if you are dealing with a reasonable collection agency, there is a good chance that they will be willing to negotiate with you. The debt collector will be far more concerned with actually collecting payment than what is listed on your credit report, so they might agree to remove the collection from your credit report in exchange for payment in full.
This type of deal provides a benefit to both parties. The debt collection agency gets paid for the debt they are collecting, and the debtor gets a tangible benefit for making the payment. Debt collection, and especially debt collection in California, is a tough business. Therefore, if both sides are benefiting from a proposed arrangement, there is no reason for either side not to agree.
Credit Repair Assistance
Many people choose to deal with their debt and credit situations by hiring a credit repair company or trying to consolidate their debt in the form of new loans. In reality, the easiest way to get out of debt and repair your credit report at the same time is to simply pay off your outstanding debts and collection accounts. Once that is done, the rest of the work will take care of itself.