What Happens When Your Credit Card Goes To Collections?
by Mr Credit CardWe had a couple of readers who wondered what would happen once their credit card debt went to collections.
Hello Mr. Credit and thank you for taking time off your busy schedule to answer my question. Well here it is. I have had a delinquent card that went into collection.
It was a couple from a a couple years ago and one from few years ago when i had some financial hardships.
Now i am not the type of guy to run from debt nor to break the law. However the creditors are after me but soon they will wipe out my history and I have learned from my mistakes and suffered greatly.
My question is if i open a secured credit card to begin to rebuild my history Will the debt collectors be able to see that on my credit report.
Will they be able to even see my credit report and can they ultimately find me on the basis i opened a secured credit card???
That is a three part question but i will appreciate your time on this matter. I just wanna build my history over. It has been so long since my mishap that I am just willing to take the credit loss with these other cards i am delinquent with and start new. Will it work?
Thanks for your question!
Your best bet is to take a two-step approach:
Step 1: Don’t let that debt go!
If you continue to ignore your old debt, your creditors will manage to obtain a judgment. If they get a judgment, then your future wages will be garnished.
Debt never really goes away you see. Instead, it gets sold from company to company. Each new company has their own departments which will attempt to find you. Each new company will report negatively on your credit reports. (This is horrible because it creates new negative accounts on top of the old ones and wrecks your credit score even more.)
So, don’t let that old debt go. Since the debt is a few years old, you are a really good candidate for debt negotiation. Now, I don’t know how much old debt you have, but you should be able to negotiate the total down to at least half.
If you qualify to use a Debt Negotiation Company, then you may be able to get the old debt down to as little as 33 cents on the dollar.
Please trust me when I say that this debt will not go away. It may eventually drop off after 7 – 10 years, but you can literally repair your credit in two to three years (or less) if you make this debt go away.
To complete this step, fill out the quick form found here. It goes directly to Sam Sky, our resident debt negotiator. If you don’t have enough debt to qualify for Sam’s program, he should still be able to give you some very good tips on how to negotiate your own debt so that you can finally get this debt out of the way.
As far as the debt collectors being able to see your credit report and find you based off of any new applications, in theory, no, they shouldn’t be able to find you that way.
However, they use a whole host of ugly tactics to find you. Once they do, you are hit with a garnishment, and it’s all down hill from there.
Step 2: Get A Secured Credit Card
You can open up a secured credit account at any time, even if you have other accounts in collections. This is a very good thing to do. It will at least put one positive revolving account on your credit report each month.
I always tell people this: If you are using a secured card to rebuild your credit, then use the card sparingly.
All you have to do to get that new account to raise your credit score is to charge $20 a month and pay the account off in full each month.
Make sure you treat that credit card as a tool for raising your score only. If you get your balance up to the limit on that card (or any credit card) then it will lower your credit rating instead.
So yes, get that secured credit card as soon as possible, make one regular small charge each month, and pay the account in full each month. That will help your credit score tremendously.
Collection Accounts vs. Bankruptcy
We had another reader with a question about bankruptcy and collection accounts:
Hello Mr. Credit Card, I have a mountain of unsecured credit card debt and I am considering bankruptcy (probably Chapter 7).
My question is would it be more feasible to just let them go to collections since I have no assets and no current income. I found online that “collections” are on your credit report for 7 years and bankruptcy is there for 10 years.
Would this forsake me for only 7 years verses 10 years? I am a recent college graduate and have been unable to secure a job in the United States.
I am considering working overseas so I am not sure if I should file for bankruptcy before I go or just let them go to into a collection status.
Thank You, Chris
Hey Chris, thanks for your question.
I have really good news for you. You can repair your credit score in as little as three years if you take the right steps from this point on.
Here’s the best plan:
If you are going to declare bankruptcy, do it right away, do not wait. Have a free consultation with a bankruptcy lawyer as quickly as possible to see if Chapter 7 bankruptcy really is the best option for you. Ask the lawyer if they will accept payments from you.
I am telling you not to wait for several reasons –
- Seven years from now you want this entire mess behind you - If you continue ignoring the old debt, it will still be there in seven years. By that time, your wages in the US (if you earned any) will have been garnished. If you go overseas, and then come back, they can still be garnished when you return and earn income in the states again.
- Declaring bankruptcy immediately takes care of the old debt - yes it will hurt your credit score. BUT you can immediately begin repairing your credit score using secured credit cards. If you do things right, in three years you can pretty much completely repair your credit score.
- If you do not declare bankruptcy, and you continue ignoring the old debt, you are literally going to have seven years of bad debt recorded on your credit report, and you may not even qualify for a secured credit card. It is going to be very, very difficult to rebuild your credit from that point on. Possibly even more difficult than if you had just declared bankruptcy.
Definitely check with a lawyer in your state to see if bankruptcy is the best option for you.
One special consideration with bankruptcy: Some lenders will not work with you if you have a bankruptcy on your credit report. It’s just their policy.
However, if you declare bankruptcy and repair your credit, then the majority of lenders will work with you anyway. If someone says no, you just have to move on until you find someone who says yes. Bankruptcy really doesn’t have the stigma attached to it that it used to – it is far more common today than it was twenty years ago, and most lenders are adjusting their policies.
Also, as far as your credit score and reports are concerned, your current activity matters a lot more than your past activity. So as long as you manage your credit well after the bankruptcy you will have no trouble getting loans and credit in the future.
To sum up here, don’t wait. If you are serious about declaring bankruptcy, then every month those negative accounts show up on your credit reports your scores will go down.
After the bankruptcy, those negative accounts should quit reporting and show up as included in your bankruptcy. It is your responsibility to check your credit report and see that everything that was included shows up that way.
I have a step by step guide that you can download here:
I am also going to link a few articles at the end of this post that tell you the easiest way to repair your credit after bankruptcy. Use those guides, put the time into repairing your score, and in three years your situation will be completely different.
Have a question for us? Leave a comment below!
Keep reading and grab our free RSS feed:
- Repairing Your Credit After Bankruptcy Part 1
- Credit After Bankruptcy – How to Get Credit and Manage New Credit Accounts
- Cleaning Up Your Credit Report After Bankruptcy
- How To Get A Car Loan After Bankruptcy
- How To Get A Home Loan After Bankruptcy
March 10th, 2009 at 17:03
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March 11th, 2009 at 02:12
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March 20th, 2009 at 02:14
I purchased a camera from Circuit City (Chase Bank)- no interest for one year. I did not read the fine print & that a minimum payment was due each month (ON TIME) to Chase Bank. The minimum payment was $20 (did not know this) & I paid $18. I did make monthly payments of $18 but not on time. Four months later I’m told that I am behind & late fees have been assessed.
I quickly pay the balance of the camera itself $200 to customer service while on the phone (bank transfer). I have written the bank twice (Chase Bank) asking them to close my account, for forgiveness, that I made restitution on the balance of my original purchase & to turn my balance (late fees & interest) over to collections. They have only closed the account.
I don’t want to pay any more than the cost of the camera $300. I wish I had paid cash in the 1st place but got caught up in “special being offered.”
I have no car payments, no mortgage, a Ciitbank credit card account that I pay in full, on time each month, as well as all other bills in full on time.
I was told by Chase that the account will continue for five more months & then will go finally to collections. What will happen if I blow this off. It irks me that I have to pay more that the original cost of the camera because I was misinformed by Circuit City (now defunct) of the terms of the “special.” Chase Bank keeps calling wor work things out. Please comment on this case. Thanks
January 5th, 2010 at 15:40
My mother passed away in Sept and has a credit card debt of 13,000 which was protected (I thought) by balance insurance and each time I called and checked they said “If anything happens her balance will be paid”. No one told her or myself that it had to be accidental. Then I found out from a woman in the accounts department that you are only eligible to qualify for balance insurance if you are under 65. My mother didn’t even get enrolled until she was over 65. Someone knowingly accepted her and she has paid her balance in full and started over again and now they are sending her account to a collection agency. She has paid into this balance insurance for 17 years that is 17 X 12=204 months X $84.00/month = 17,136.00 and they won’t pay off her balance. They said they will try and take my house away (we have joint ownership) title is in my name only. What can or what should my next step be. This balance insurance was done over the phone by those solicitation people. Help