- For some reason, most people believe that the worst thing you can have on your credit report is a collection account. In reality, collections come far down the list of painful events that will negatively affect your credit. The first and most damaging is filing a personal bankruptcy, whether a Chapter 7 or Chapter 13. We estimate that between 30% and 35% of your credit score can disappear through filing bankruptcy.
Next, experiencing a home foreclosure or going through a home short-sale might lower your score from 25% to 30% or so.
Finally, each account that ends up in collections can have a 5% to 10% negative effect on your credit score. So, if you have multiple collection accounts on your credit report, you can see a dramatic decrease within a short period of time.
Speaking of collections, do you know the first steps you should take if you ever receive a collection notice? That’s up in the next lesson.
