It is of utmost important to know what is on your credit report. Supposedly, you are in a huge financial problem and you have limited cash flow, at that time you need to choose which bills are to be paid first that month. You must always pay off the bills that affect your credit the most. This should not be a reason for you to miss out on certain payments. But in situations such as an illness, death in the family or loss of employment, you will have to make a choice on which bills need to be taken care of first. It is a sign of relief that the credit report doesn’t take into account the bills like rent, water, phone, cable and taxes don’t affect the credit score right away. But, if these bills are unpaid for a consecutive months, then they will be sent for collection.
The collection companies find and collect the outstanding debts and provide services on behalf of the lenders and the banks. So, when the bill is with the collection company, it will immediately register a black mark on your credit report. The collection will show up under the public records portion of the credit report. This section records information on bankruptcy, consumer proposals and the other big negative hits on your credit. The public record including the collections will hurt your credit. The payment of collection will not remove the damage that it has done as the collection record will stay on your credit report for six years from the time it was first registered.
Most times people do not even realise that they have collections recorded in their credit report and they only find out when they are applying for a credit financing. This will further make it impossible for you acquire the loan or the lender will give it to you for a really high interest rate or fees. But the lender will want confirmation that the collection is paid off before lending you any money. The easiest way to confirm that the payment is made is by receiving the confirmation letter stating that the amount is settled in full and the account balance is now zero. Make sure to keep the confirmation letter with you for at least the next six years as collections will come back on your report even after you have made the payments.
Apart from that the lenders check for your payment history, company profile, EMI to income ratio and the written off cases reported in the Credit Information Report. The EMI to income ratio is another important factor. If your EMI is more than 50% of your monthly salary, then the chances of you getting a loan is slim. The best thing to do is check your credit report annually and see how you can improve your credit score and credit history. And look out for the public records portion in your credit report before you apply for a huge loan.