Q: Which is worse: bankruptcy or collection?

A: I’m assuming that you’re wondering whether bankruptcy or a collection is worse for your credit history or credit score. The answer is that while neither is a good choice, bankruptcy is a big black mark on your credit. It will stay on your credit history for 10 years, although it will less dramatically affect your credit score as the years pass. After about 4 or 5 years, a bankruptcy should have a significantly smaller impact on your credit score.

Having a collection on your credit history, however, isn’t a bed of roses. Collections can stay on your credit history for up to 7 years, although as with a bankruptcy, the newest information on your credit account contributes more toward your credit score. The problem with collections is that it indicates your credit score might be in awful shape. I’m guessing you’ve had several late pays, each of which can sink your credit score by 50 points or more. It doesn’t take long to drop below the 680 mark, the point at which most lenders today will agree to give you a mortgage.

Different types of collections can have a different impact on your credit score. A collection for a $100 debt, unrelated to a mortgage or credit card, will not affect your credit score as much as a failure to pay a credit card debt, particularly if the credit card company moves against you to collect on that debt.

Please go to AnnualCreditReport.com and pull a free copy of your credit history. You’ll have to pay around $7 for your credit score. I’d choose the Equifax credit score since that most closely mirrors the one that mortgage lenders use.