Your FICO score is what lenders look at to determine whether or not you're eligible for a loan. Your score is made up of job history, criminal history, rental history, loan history and current loan history. Depending on how much you make and how much you owe gives lenders an idea of whether or not you can handle a new loan. This is what determines your score.
If you are past due on current loans it will bring down your score and make it more difficult to get a loan. Just about every company reports to credit bureau if you do not pay. It can be something as small as a $25 parking ticket you refused to pay or as big as a mortage.
Obviously, if you don't pay your mortage it will effect your credit score much more than the parking ticket but the ticket still weighs down your score. If you pile on little bills like that here and there then it will have a much greater impact on your FICO. Pulling your credit also hurts your score.
Its very important to watch your FICO like a hawk. All three credit bureaus offer free credit reports every 6 months. Many people will go in for a loan and see their credit and be surprised by the amount of collections on there. This is for several reasons. Some companies will sneakily slip something past you without you knowing. Sometimes companies can't get a hold of you. People move locations and never get their mail and don't know they're being charged until many months or years down the road.
Most of the time though people just don't want to pay and feel like they shouldn't so they don't. This is probably 90% of all collections. I'd say the remaining 10% are because of unfortunate events or what I had explain briefly above.
It is important that when you sign a contract you understand the implications involved with breaking that contract. You need to read the fine print and fully undertand the loan before you sign it.
