When you have bills, the companies whom you owe know where and how to find you. If you don’t pay your bills, you can expect that creditors will collect what they’re owed. One way to accomplish this is resorting to debt collection agencies. When you don’t pay, your account goes into collections. This negatively impacts your credit score.
This can affect you adversely if you decide to open a business down the line. If your shop needs to accept credit card payments, you’ll need to work with a merchant account provider. However, due to strict underwriting guidelines, your acceptance may be dependent on your credit score.
When your account goes into collections, it is reflected on your credit score. The recent two years are the most important, and the older a collection is, the less it will hurt your score. Collections will remain on your report for a total of seven years past the date of delinquency, or the date when you stopped paying your bills.
In the past, even paid collections could have hurt your credit score. Now, luckily, if you’ve settled your debt, it will no longer harm your credit score.
When an account goes into collections, your score will drop a number of points. This number depends on various factors unique to your situation. Unfortunately, the higher your score is before delinquency, the more it can fall.
For example: A three-month (90 days) late account can fall up to fifty points from someone who began with an excellent credit score. If you began in the lowest tier of a poor credit score, your score might drop only ten points.
Your acceptance to get a bad credit merchant account in order to begin accepting credit card payments will depend on a number of factors.
If you have poor credit, banks will view your business as high-risk. From there, you’ll need to apply for a high-risk merchant account. While obtaining a merchant account the traditional way may be difficult and lead to less than ideal results, companies like High-Risk Pay specialize in working with high-risk businesses.
The best way to ensure that you’ll be accepted for a merchant account is to get the collections off of your credit report. The first step should be making sure the agency that is demanding payment has the right to collect your debt.
Just one overdue account can be sold multiple times to different collection agencies, and the sale must be documented. You can verify that the person contacting you owns your debt by sending a validation letter to the agency that has contacted you.
You should aim to send a letter within 30 days of being contacted for the first time to ask for the debt to be validated. In this letter, never acknowledge that you owe a debt or say that you agree to pay it. The collection agency must be the one to prove that there is debt and that they have the right to collect on it.
If you find that the debt cannot be validated, you should write to the three credit bureaus and tell them to remove the collection from your credit report.
If the debt is validated, you have a few options to go about getting it removed from your credit report.
Paying off the debt is the most efficient and effective method for getting it off of your credit report.
The collection agency may allow you to pay off a smaller amount to satisfy the debt.
When you don’t pay your debt, this is when your credit will continue to be affected until the seven-year mark. After seven years, it will be removed from your credit report. However, for businesses who need to accept credit card payments, this is not the best option as it greatly reduces your chances of getting a merchant account.