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    Maneet Anand

    Yes, it will most definitely hinder your approval. As, when a creditor sends you a collection, it means the debt has gone out of his control, he has given up, written off the debt and sold it to a collection agency. And, this will badly impact your credit score, affecting your ability to get a personal loan approval. However, the nature of collection items can make a difference here.

    The bank’s underwriter sees collection accounts in the “Public Records” section at the front of the credit report. If you have secured debt like auto loans or unsecured obligations like credit cards in collection, you likely won’t get approved. However, the underwriter may overlook certain types of collections, like medical, entirely. The reason behind this is that medical collections are often contested due to misunderstandings with insurance companies. If this is the case, it doesn’t hurt to submit a letter of explanation along with your application.

    The best way to deal with a collection account is to pay it off as soon as possible. However, even after you satisfy the collection, it will remain on your credit report for seven years from the date of the first delinquency. Hence, your best bet is to hope that the bank will overlook it, considering it's already been paid for.

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