How Does a Collection Appear on Your Credit Report?

Forgetting to pay a fine, ignoring unaffordable debt, missing a bill payment — such scenarios may lead to debt collectors and, eventually, the black mark of a collections account on a credit report.

Just like that, a consumer’s credit problems can be a lot greater than one unpaid bill, as collection accounts ding credit scores and hurt access to other forms of credit as a result. For many consumers, a collection account won’t come as a shock — they know they’ve ignored their credit card bills or skipped out on rent — but there are times when something small, like an unpaid parking ticket will appear on a credit report.

It’s easy to spot collections accounts: They’re clearly labeled as such on credit reports. If it is related to another account on the report, like a credit card, the report will show where the debt was transferred and, usually, where it originated.

“Typically, if you see just a collection account with no associated debt prior, it’s something like a utility that doesn’t report the account traditionally,” said Rod Griffin, Experian’s director of public education. It doesn’t happen often, but there are some library systems and police departments that report unpaid late fees and traffic tickets to collections agencies, which could show up and surprise a consumer, Griffin said.

The contact information for the original creditor and the collection agency will be listed on the report, said Mark Schiffman, vice president of public affairs for ACA International, the association for debt collection professionals. Medical debt is an exception — the original creditor is likely not listed for privacy reasons, Schiffman said, and a call to the creditor will help the consumer determine the source of the debt.

Can Anything Go to Collections?

While some service providers more frequently report unpaid debts to collection, there’s no list of companies or industries that do or don’t engage in the practice.

Pretty much any company with a consumer or business debt that needs to be recovered can hire a debt collection agency, Schiffman wrote in an email. “Third-party collectors are typically hired on commission paid only if they recover a debt. The debt must be recovered following federal, state and local laws or regulations on how consumer or commercial debt is recovered.”

Collections agencies must be approved by the credit reporting agencies and must be capable of handling disputes, which consumers have a right to make when faced with debt collection. If there’s a question about the account, it’s best to start with the original creditor, then reach out to the collections agency, using the contact information on the credit report.

What to Do With a Collections Account

One thing to note about calling a collections agency: “Expect that they’re going to try to want to collect from you,” said Gerri Detweiler, Credit.com’s director of consumer education. “Be prepared for that, but at the same time, you do have rights. You have a right to receive a written notice of the debt, and you have a right to dispute the debt.”

It’s collection agents’ job to get consumers to pay, but they’ll also give consumers the information they need. Michael Bovee, founder of the Consumer Recovery Network, recommended keeping a “courteous, professional tone” while asking for details of the debt. When you decide you’re ready to tackle it, call the debt collector back and get a plan in place.

As far as credit is concerned, Bovee said it’s best to resolve the debt as quickly as possible.

“If they’re able to get all of that done within a short time frame — say one year, six months — they get out there and get fairly priced credit products again,” Bovee said of the advantages of paying a collection account quickly.

No matter how you approach it, paying down debt is crucial to rebuilding credit.

“Credit gets dinged, and it can be improved,” Bovee said. “It can be improved as soon as you have a plan.”

 Image: Hemera