4 Ways Unpaid Debt Can Haunt Your Credit

Published on Mar 04, 2015 11:25 am

Abandoning a debt may seem like a victimless crime, but don’t be deceived – the one it hurts most is you. Being deep in debt can be a scary and overwhelming place, however it’s also the time it’s most important to make a rational choice. You might have considered something extreme, but before you choose to skip a payment, it´s important to explore all your repayment options to avoid the legal actions a lender may take if you fail to repay your debt. While the type of action a lender may take depends largely on the type of debt you carry, the tactics that can be employed against you all carry a significant penalty:

  • Repossession of Property
    When you finance a purchase that is tied to an asset, (like your home or your vehicle), you are giving the lender permission to repossess the asset if you should fall behind on your financial obligation to them. In these instances, you not only lose your property or automobile, but your account is marked with a foreclosure or repossession notice, having a potentially significant negative impact on your credit report for at least seven years.
  • Collections Agency
    When you fail to pay your financial obligations that aren’t backed by an asset, (like credit cards, utilities or even parking tickets), the lender may choose to send your unpaid debt to a collections agency. The amount, plus interest and penalties, will be listed on your credit report and remain in view for seven years. In addition, the debt collector will contact you – sometimes aggressively – to try to obtain the balance you owe until the balance is resolved.
  • Credit Report Lien
    When it comes to Uncle Sam, failing to pay your taxes can end in a lien on your property – and your credit report – which inhibits you from selling or making changes to the property in question. Skipping out on your state or federal taxes empowers the taxing agency with a legal claim to your property that shows up on your credit report, and as a result, can also make it difficult for you to secure any new lines of credit.
  • Legal Judgment on Your Credit Report
    While some creditors or companies opt to send your account on to collections, others may take you to court to recover the unpaid debt that you owe. When your past due balances develop into legal actions, a judgment is placed on your credit report. A judgment is a legal acknowledgement that you owe a balance to another party, which can have a negative impact on your credit, as it’s an official recognition that you didn’t stay on track with managing your payments.

When having trouble covering your rent, squaring up credit card balances or paying your taxes, contact your lender to explore all of your repayment options and avoid these four ways unpaid debt can haunt your credit long after you´ve missed a payment. Remember, your credit is with you for a lifetime: don’t let short-term problems snowball into big credit mistakes that stay with you for years at a time.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2015 ConsumerInfo.com, Inc. All rights reserved.

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