Owning A House After Collections

Getting a collection item on your credit report will have undesirable effects on your FICO score. There are ways you can take control of the situation and remedy or remove the collection account altogether from your credit history. Here’s what we’ll cover:

  • What’s a collection?
  • How do I fix a collection?
  • How does a collection item affect my FICO score?

Collections: So What Are They Exactly?

An account is in “collections” when the past-due amount is purchased by a credit agency who will attempt to collect the balance. Agencies buy them at a reduced rate, and they are able to find out your residence and place of employment. A collection item stays on your credit report for 7 years, even if it is eventually paid in full. Read any information the creditor and/or collection agency puts on your credit report very carefully.

Collections: How To Fix A Collection

If you have an overdue account, the collection agency will make contact with you, often by way of a letter. You usually get 30 days to dispute the information in the letter, so read the letter immediately in case there are mistakes. You should keep track of all correspondence/conversations with the creditor or collection agency. Since the creditor is the one with the negative mark on their accounting books, they are the best ones to negotiate with as they are able to decide whether or not to notify the credit bureaus to delete the collection item from your report. It is in your best interest to secure all agreements in writing before paying. It’s a good idea to familiarize yourself with your rights under the Fair Debt Collection Act.

Collections: How Do They Impact Your Credit?

Unfortunately, when an account is sent to collections, it will show up on your credit report for 7 years, even if the debt is paid. By paying the debt, the collection item will be noted as “paid in full” and your FICO score will no longer continue to be affected by the outstanding debt. Even after the debt is paid, you can continue to dispute it if you wish to do so. The best way to prevent collections is to stay on top of your bills, update your postal address and information when you move, and habitually track your credit report for any changes.

Owning After Collections

Owning a home again after collections is something that can be done, but you will want to work closely with a loan officer who can help you get approved. It is still possible to own again after collections, but there are widely different rules about how to deal with them between lenders. You will want to find the right loan officer at the right lender if you plan to own again after collections.

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