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As far as I can recall, there will simply be a note on your credit report that the collection is contested. For the small credit union where I worked, contested or not, you were disqualified for all loans and credit.
I haven’t worked in that industry in 15 years now, but I don’t imagine much has changed.
I hate our credit system and I think it needs to be torn down. It’s predatory and we don’t even attempt to educate people about how it works (or we didn’t when I was in school).