Credit scores are based on one thing: the information contained in your credit report. When banks, credit card companies, and many other companies lend money to you, they typically report your status in terms of making your payments on time to the three credit bureaus: Equifax, Experian, and TransUnion. Each bureau then compiles this information into a credit report, which is the ultimate gatekeeper to your credit rating. Negative marks on your credit rating will stay there for 7 years. This can severely limit the types of loans you will qualify for, as well as the interest rates that accompany them.

When you begin to lapse in payments to a creditor, whether it is for loan payments or credit card payments or financing payments, the creditor will go though various steps in an attempt to receive payment. After a (usually long) series of warnings, the creditor will eventually sell your debt to a collection company. When a creditor does this, they are effectively "writing the loan off," as they generally sell the debt to a collection agency at a heavy discount.

Basically, when this occurs, the creditor has decided that the chances of recovering the loan are small enough that they are willing to lose as much as half of its value in order to stop pursuing it. When this happens, the creditor will inform the credit reporting agency, and you will be left with the lowest possible mark on your credit report, which will affect your rating for up to 7 years.

A crucial step to credit repair is to take the necessary steps to avoid this "writing off" of your debt. You should act as soon as possible after being contacted by a collection agent. The first thing you should do is contact your creditor - not the collections company - and see if you can arrange to clear the debt with them. In many cases, if you agree to repay the debt immediately to the creditor, they will remove the "gone to collection" mark from your credit rating - essential to quick credit repair.

If your creditor is unwilling to do this, you're stuck with the collection agency. In terms of credit repair, keep in mind that the mark on your credit rating can't get any worse at this point - the debt has already gone to collection - so take time to consider all of your options. Usually, the collection agent will contact you in an aggressive manner demanding immediate and full payment of the debt, and imply that they will take you to court if this doesn't happen.

It is to your advantage in this situation to understand that the collection company has likely bought your debt at something close to half its value, so any payment higher than that will result in a profit for them. Try and offer to pay less than the full value of your debt immediately. In most cases, the collection agent will be motivated to close your file as soon as possible to avoid the process being dragged out. They will usually be willing to accept a quick payment at a discount so they can move on.

In order to achieve credit repair as quickly as possible, always attempt to pay your creditor rather than the collection agent when your debt has gone to collection. If that fails, offer the collection agent a lower figure than the full loan amount. Full payment to a collection agent should only be offered as a last resort. Anything is better than having the bad debt showing as an outstanding balance reporting on credit.