Credit Ratings. Everyone is talking about them and they are a very important aspect of every adult's life. But what are they exactly, and how are they determined? It all starts with a credit card, checking account, or bank loan. Once you get any of these, the business which gave them to you reports information regarding the loan (such as your payment history, the amount, if it's in good standing, etc) to a credit agency. The agency then makes a credit report for you, which can be accessed by other businesses (and yourself as well). Your credit rating is determined based on this credit report. Any bad marks on your credit report will stay with you for 7 years, affecting all aspects of your financial life.

A bad mark on your credit report usually starts out as late or missed payments to the creditor. Perhaps you've missed a credit card payment or you can't make your mortgage payments. Eventually the creditor will decide that there is such a small chance that they'll get you to pay your loan, they will sell it to a collections agency. The collections agency can get defaulted accounts for a small fraction of the actual value. In return the creditor is able to write off the money lost. If this happens, the creditor will let the credit report agency know and the credit report will get the lowest possible score. This score can stay with you 7 years!

If this has happened to you, there are things you can do to help the situation. First, if a collections agent has contacted you, call the creditor right away. Discuss ways to pay your debt with them directly, not through the collections agency. If you somehow pay the debt immediately, they will often be willing to remove the bad mark from your credit report, saving your credit rating!

If the creditor won't do this for you or you can't repay the debt to them, then you'll have to work with the collection agency. Take your time to think about all of the options available to you before you make your next decision. At this stage the mark on your credit report can't get any worse, so you have some time to think. Collection agencies are aggressive and will contact you repeatedly, demanding you pay your debt in full or face them in court.

Don't forget that the collection agency most likely got your account for half of what it really was, so if you pay more than this they will make a profit. Offer to pay less than the full amount immediately. Often the collection agency will agree to avoid a long, drawn out process.

Let's recap what we've discussed. If you need to quickly repair your credit, first attempt to pay the creditor back directly. If this isn't possible, then offer the collection agency a full payment of less than the full debt amount. If this doesn't work, only pay the full amount if absolutely necessary.