If you’re wondering why did my credit score drop, the answer may or may not be simple. There are a lot of actions and activities that could cause your credit score to tumble, at times dramatically. However, if you’re credit score fell by 100 points in a single moment, the list of potential reasons tends to be shorter. If you’re wondering why did my credit score drop 100 points, here are some possibilities.
When debt is sold to a collection agency, it’s incredibly common to get upset and/or worried. Odds are, you’ll start getting calls, emails, and text messages about you paying what’s owed.
In today’s post, we’ll discuss what leads to debt going to collections, what to do, what the collections agency can do, and what happens to your credit.
Why does debt go to collections?
Debt goes into collections when you’re behind a certain period of time (usually 30+ days) on your payment.
The lender will either use their own debt collectors or hire a third party to collect. What might also happen is your debt is sold to a collection agency, where they buy the debt from the lender (at a reduced amount than what you actually owe) and then attempt to collect on that amount.
With regard to mortgages, there are certain time periods to keep in mind:
- 1 – 15 days – Typical grace period. Your payment must be paid in this period.
- 16 30 days – You’ll start getting reminders, and you’ll likely pay a small late fee. No damage to your credit.
- 31 – 59 days – Reminder calls and letters will increase. Your credit will reflect your current late status and your credit score will fall.
- 60 – 90 days – The reminder calls and letters will stop. Someone from your lender will come to your house.
Read more on this subject, here.
What to do when your debt is sold to a collection agency
Don’t ignore it. The best thing you can do is get ahead of it. Gather information about the debt in question. Have them send it to you in writing.
Contact the creditor. Dispute it if you believe there are inaccuracies, or if it’s just not your debt. If it is your debt and everything is accurate, try to negotiate with the lender – they prefer to receive some of what you owe!
If the collection agency is harassing you, submit a request in writing for them to stop.
What if you’re at your wit’s end and don’t know what to do? Hire an attorney. All correspondence, going forward, has to go through them. If anything, get a consultation from an attorney (which is often offered for free) and see what they recommend.
What can they do?
When it comes to collections and the law, there are a few things they can do and several things they can’t do. If you want to know more about that, click here.
There are two important things to know when it comes to collections and your credit report.
- A collection (or a charge off) hurts your credit score. Not only that, but your payment history (number one factor when calculating your score) will no longer be 100%, and that’s damaging as well.
- A collection will stay on your credit report for 7 years. You can implement strategies to improve your score, but you’ll only be able to do so much while that collection is on there.
Having a debt sold to a collection agency isn’t the end of the world. There are several things you can do to rectify it, dispute, or recover from it.
The upcoming storm of rising interest rates and increasing lender cautiousness makes life difficult for people with already bad credit ratings. In the coming year, you will have to tighten up and you will have to make a new start to get your credit rating back on track. Forget about the mistakes of the past and read our tips for how people with bad credit can survive the storm.
Don’t Cancel Your Credit Cards
Do you have a spending bug you can’t seem to beat? The worst thing you can do is to cancel your credit cards. Unbelievably, this is a sign of panic and lenders will kick your credit score in the pants for doing it. The alternative is to leave these lines of credit open, but cut up the card. That way you’ve effectively closed your account without hurting your credit score.
Can You Kick a Debt Quick?
The reason why so many people have bad credit is spiraling debt. They get into a situation where they have so many bills coming in they can’t pay them all off and they barely remember who they owe and how much they have to pay.
Start the next year by hitting a debt right between the eyes. Get together a lump sum and pay off some debts in their entirety. This is a form of debt consolidation that will make it easier to rebuild your credit rating later on.
Talk to Your Lenders
It’s amazing how many borrowers won’t speak to the people who have leant them money. Nevertheless, this is a powerful tool in your resource. If you’re having problems paying your debts or rebuilding your credit rating, talk to these people. Tell them your difficulties.
They’ll often work out a different agreement to help you make your repayments. They don’t care about anything except getting their money back, so any chance to make a formal arrangement will be grasped with both hands.
Too Many Loans?
This is the first step. We’re not saying that you need to stop taking out all loans. You need some lines of credit if you’re going to rebuild your score. However, what people need to understand is that in the future lenders are going to be more stringent than ever before. Every rejected application leaves a stain on your credit record; therefore, you should only apply for loans you’re practically guaranteed to receive. A good choice might be a company like the scottishtrustdeed.co.uk where their focus is to help people find personal loans with bad credit. Interest rates will be higher but again your best bet is to not apply for loans.
Get a “Bad Credit” Credit Card
Someone with bad credit has the problem of not being able to easily get any new lines of credit. They need a higher rating. This is where “bad credit” credit cards come in. These are types of cards designed specifically for people with bad credit.
Here are some characteristics of these cards:
- Higher interest rates.
- Lower limits.
- Lack of choice.
As you can see, the upcoming debt storm isn’t a reason to panic. Keep a cool head and you should have no problems getting out of that pit of bad credit.
If you’re like me, then the past month or two of your life has involved getting your financial ducks in a row in order to file your taxes. Now that tax season is essentially over, it’s a good time to take a look at your credit card situation before you take a much-deserved break from obsessing over your finances. If you’ve got any significant credit card debt, then you’re probably thinking of the best strategy to go about paying off that debt. As a former victim of credit card debt, I know that drowning in debt is not fun, and often leaves you feeling trapped. However, I’m here to tell you that you can get that debt paid off, and it’s easier than you may think as long as you are responsible with your spending. In addition to being responsible, stick to the four guidelines below to get that debt paid off most effectively.
- Pay down your highest APR credit card debt first. This point is the most important, and should probably go without saying, but I’m going to say it anyway. If you have several different credit cards that you’ve accrued debt on, you need to pay off the balance that is charging you the most interest first. If you fail to get those high-interest credit card balances paid down, then you will find yourself falling deeper and deeper into the debt hole.
- Always make the minimum payment. Sometimes it may seem as if there is no end in sight to the debt you have accrued. Since I’ve personally been through this myself, I know that there is an end in sight. However, if you fail to make your minimum payments each month, your credit score is going to take a pretty significant hit so that even when you have all your debt paid off, you will end up with a poor credit score, which isn’t going to be useful when it comes time to buy a house or car. Generally, the minimum payment each month isn’t a huge amount of money, so do everything you can in order to get that minimum payment in.
- Consider a balance transfer. If you have a decent credit score but have accrued sizeable debt on credit cards that charge high interest rates, it may be in your best interest to consider a balance transfer in order to consolidate your debt onto a credit card with a 0% APR introductory period on balance transfers. Not all balance transfer credit cards are created equally, however, so you will want to make sure you compare credit cards so that you can find a card that offers a long 0% introductory APR period. The longer the intro period, the more time you have to get that debt paid off without accruing any interest.
- Get rid of debt before trying to save. Generally, the credit card debt you accrue will charge a much higher interest rate than the interest you will earn on cash that you save. While it’s always smart to have a small stockpile of cash for extreme emergencies, most of your income should go to paying down that debt. If you try to save most of your money before paying down that credit card debt, you’ll be stuck in debt for much longer than you need to be, as well as hurting your credit score.
This article was written by Logan Abbott. Logan is the editor of MyRatePlan.com, and a personal finance and credit card expert with over a decade of experience.