Can Collection Agencies Repair Your Credit?

In terms of credit repair, debt collection agencies cannot add marks on your credit report. It means that your credit rating cannot get any worse at this point and you have time to consider all of your options. In this situation should you deal with debt collectors? Read on to learn what you can do...

When banks or credit card companies lend you money, they report your ability for making payments on time to credit bureaus, which then compile this information into your credit file. Miss-payments or non-payments will leave negative marks on your credit record and prevent you from getting most kinds of loans. If you have to depend on credit then you will need to repair your credit.

What Happen When You Don't Pay Your Creditors?

When you begin to lapse in payments to a creditor, the creditor will go though various steps in an attempt to receive payment. After a long, serious of warnings, the creditor will eventually sell your debt to a third party collection company. When a creditor does this, they are effectively "writing the loan off" as they sell the debt to a collection agent at a heavy discount.

In this stage, the creditor has decided that their chances of recovering the loan are small enough. They're willing to lose as much as half of its value in order to stop pursuing it. When this happens the creditor will report the default on the loan to credit reporting agencies. They then will then put the lowest possible mark on your credit report for up to 7 years.

Should You Deal with Creditors or Collection Agencies?

A crucial step to credit repair is to take steps to avoid this "writing off" stage. It means that you need to contact your creditor as soon as you've been contacted by a collection agent, to see if you can clear the debt with them. In many cases, if you agree to repay the debt immediately to the creditor, they will remove the "gone to collection" mark from your credit rating.

If your creditor is unwilling to do this, you're stuck with the collection agency, but the mark on your credit rating cannot get any worse at this point. At this stage, it's not a surprise that the collection agent will contact you in an aggressive manner, demanding immediate and full payment of the debt, and imply that they will take you to court if this doesn't happen.

Remember, the debt collector has likely bought your debt at something close to half its value and any payment higher than that will result in a profit for them. Here you may negotiate to pay less than the full value of your debt immediately. In most cases the collection agent are willing to accept a quick payment at a discount so they can move on.

So for a credit repair objective, always attempt to pay your creditor rather than paying a third party debt collector because a collection agency cannot help in credit repair. If that fails, offer the collection agent a lower than the full loan amount, so long as they can get a reasonable profit.

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