If you do not pay your credit card debt or personal loan, or even your monthly internet or other utility bills, you may risk having your account sent to a debt collection agency. These third-party companies are assigned to pursue outstanding debts. You are still responsible for your bill even after it has been sent to collections.
Credit Report Effects
Collection agencies report accounts to credit bureaus, and this can affect your credit score for several months, if not years. Your credit score will drop and may have already done so if the unpaid amount relates to a credit card or loan. Delays in payment and subsequent delinquencies that typically precede a collection account may have already impacted your credit score by the time of collection.
Communication from Collection Agencies
The mission of a collection agency is to force you to pay your debts, and they do not earn a profit unless they collect the debt owed to you. You can expect to receive phone calls and messages from collection agencies until you pay the outstanding amount.
Effects of a Collection on your Report
Debt collection is a severe element of delinquency and a signal to creditors and other lenders that you have not consistently honored your payment promises. You are considered a high-risk borrower, and as a result, some of your applications for new credit may be denied. Your requests for a mortgage are particularly likely to be rejected if you have outstanding debt listed on your credit report.
Unwanted Interest Rates
Not all applications are denied due to a collection on your credit report. You may be approved, but you will have to pay a higher interest rate to compensate for the increased risk of default.
Job Searches
Some employers check credit reports for potential job candidates. Having a collection on your credit report can prevent you from obtaining a job, especially in financial roles or upper management positions. To view your credit history as part of the background check process, employers must receive your written permission. You can refuse to grant permission, but this is unlikely to reflect better on your opportunities than a bad credit report.
Lawsuits
Collectors can sue you for any owed amount. If they obtain a judgment against you, they can also ask the court to garnish your wages to enforce the judgment. Do not ignore a lawsuit summons, even if you believe the statute of limitations has expired on your debt. If sued, consult an attorney about the best way to proceed.
Frequently Asked Questions (FAQs)
1. When should you pay a debt to your creditor?
If you know you owe money, and collection activities are still ongoing, you should pay as soon as possible. If you wait too long, you risk being sued for the debt.
2. Will the debt eventually disappear?
Technically, it does not disappear, but each state has a statute of limitations that defines how long debt collection can occur. Once that time frame expires, your debt is considered settled. You may receive a call from a collection agency regarding the debt, but they cannot sue you due to the time lapsed.
3. Does paying a debt in collections improve my credit?
Unless your debt was extinguished due to the statute of limitations, which may not show on your credit report, your credit score will improve by paying off held debts, and the degree to which your credit score improves will depend on other factors like the presence of other collection accounts.
Source: https://www.thebalancemoney.com/what-happens-if-you-dont-pay-a-collection-960591
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