Does Pre-Collection Affect Your Credit?

All consumers who have applied for or used credit have a credit report. These reports are maintained by credit reporting agencies and contain a history of your credit use. A credit score is a number that lenders and credit bureaus calculate, using the information in your report. The higher the score, the more reliable you appear to be at handling credit. Scores generally increase with positive credit behavior such as paying bills on time and decrease with negative behavior such as paying off debt late.

The term "pre-collection" typically refers to the process some debt collectors use before starting the more formal debt-collection process of phone calls, demand letters and debt lawsuits. Sometimes referred to as "soft" collections, pre-collection efforts typically involve a lender or collection agency sending you one or more letters urging you to pay. Whether this activity is indicated on your credit report depends on the actions of the lender or the collection agency. If the lender or agency reports the pre-collection activity to the credit bureaus, your credit score will decrease.

Because each credit bureau and lender may use a different method to calculate credit scores and measure the effect of late payments or collection actions, it's difficult to pinpoint exactly how much of an impact pre-collection will have. However, according to Yahoo Finance, a single 30-day late payment can decrease a credit score between 60 and 110 points. A pre-collection action may have a similar impact.

A lender won't begin pre-collection until a borrower is late with at least one payment. According to FICO, a company that provides credit-scoring services, regular payments make up the single largest factor in a credit score. This means that by the time a lender begins pre-collection, your credit score has already been damaged.