Falling behind on even one bill can hurt your credit. And if you can’t catch up quickly, the account could end up in collections. A delinquent account in debt collection can cause even more damage to your credit score. If you’re facing the debt collection process, here’s a crash course in what you need to know.
What’s covered in this piece
- What going into collections means
- How long it takes to be sent to collections
- When collection agencies report to credit bureaus
- Whether collection accounts are separate accounts on your credit
- How long collections can report to credit bureaus
- Whether a collection agency can report to the credit bureaus if you are making payments
- Whether collection agencies can remove a debt collection from a credit report
- If disputed debts in collections get reported
- How and when debt collectors can contact you
- If you can negotiate payments
- What incentive there is for paying off an account in collections
- Whether a collection agency can ruin your credit
- If a collection agency can come after a debt when the statute of limitations is up
- If a medical bill can go to collections even though you are paying it
- What to do if you don’t know what the original debt is for
- What to do about inaccurate collections
Q: What Does Going Into Collections Mean?
A: You stopped paying and your lender sold your debt to a collection agency
If you default on your payments of a credit card or unsecured loan, the credit card company or lender may stop trying to collect payment from you and transfer your account to their internal collections department or sell your debt to a collections company. That company would then pursue the debt and attempt to collect payment from you.
Q: How Long Does It Take for a Company to Send You to Collections?
A: It depends, but it can happen immediately
How fast an original creditor sends you to collections depends on a variety of factors, including your contract with the lender. Some contracts might include grace periods that keep the creditor from sending you to collections right away. However, outside of a contract or other special case, creditors may be able to send an account to collections the day after it becomes delinquent.
If you think you might fall behind on your payments, reach out to the original creditor as soon as possible to work out payments and avoid being sent to collections.
>> Learn more: How Soon Can a Creditor Send My Account to a Debt Collector?
Q: When Do Collection Agencies Start Reporting to Credit Bureaus?
A: As soon as they purchase your debt
As soon as a collection agency purchases old debt, it can report it to the credit bureaus so it shows up on your credit report. There is no grace period before a collection account becomes eligible for reporting. The agency can continue to report to credit bureaus about your delinquent debt for seven years plus 180 days from the point the account is placed in collections.
By the time a debt is in collections, you’re typically already late with payments. So that means the original creditor probably reported negative information and now the collection agency is doing so as well.
One exception is medical bills. Typically, credit bureaus wait up to 180 days to report these collections to allow time for individuals to work with insurance companies and providers to get debts paid appropriately.
Sign up for ExtraCredit to access your credit reports and see 28 FICO® scores. These features let you see right away when a debt is reported to the bureaus.
Q: Do Collection Agencies Report as a Separate Account on Your Credit?
That bill you didn’t pay has multiple lives on your credit report. When you open an account, it gets listed by the company extending the credit with the major credit bureaus. If you fail to pay and the creditor transfers the debt to a collection agency, the debt gets listed again as a separate tradeline in your report’s collections section.
The original creditor typically closes out their account at this point by indicating the debt was charged off as a bad debt. It can still show up on your credit report as a closed account.
Q: How Long Can Collection Agencies Report to Credit Bureaus?
A: 7+ years
A collection agency can immediately report your delinquent debt to credit bureaus upon receiving your account from the original creditor. There is no grace period before a collection account becomes eligible for reporting.
The agency can continue to report to credit bureaus about your delinquent debt for 7 years plus 180 days from the point the account was placed in collections.
Q: Can a Collection Agency Report to the Credit Bureaus if You Are Making Payments?
A collection agency can report to the credit bureaus even if you’re making payments. Once your debt is transferred from the original creditor to the collection agency, the debt gets a new tradeline on your credit report that’s under the control of the collection agency. Payments made are reflected through this new entry.
Q: Can Collection Agencies Remove a Debt Collection from a Credit Report?
A: Yes, but it’s unlikely
Many people recommend seeking a pay-for-delete method when dealing with collections. The idea is that you pay all or part of the debt, and, in return, the collections agency removes the item from your report. This actually doesn’t work well, as collection agencies have some burden to provide fair and accurate reporting.
However, if you can demonstrate that you don’t owe the money after all, the collection agency can remove the item. If it doesn’t, you can send a letter disputing the item to the credit bureau in question. The bureau must investigate the matter and remove the information if it’s inaccurate.
Q: Do Disputed Debts in Collections Get Reported?
A: If they are accurate, yes
Under the FDCPA, you have 30 days to request verification of a debt once a collection agency contacts you. Until the collection agency provides proof that the debt is valid, it’s not allowed to conduct any debt-collection activity. If the debt has already been reported to the credit bureaus, the agency must notify the bureaus that the debt is disputed. If the debt is determined to be valid, it can resume collection activity and the debt will remain on your credit report with a note that it is disputed.
Q: How and When Can Debt Collectors Contact You?
A: Only at convenient times and places
Debt collectors can call, email, and text you, as well as send you letters. Luckily, there are a few regulations around when they can contact you. Specifically, they cannot contact you at inconvenient times or places. That means they can’t contact you before 8 a.m. or after 9 p.m. unless you specifically agree to it. They also can’t call you at work if you tell them you’re not allowed to get calls there.
If you send a letter by mail asking them to stop contacting you, they can only contact you to confirm or tell you a specific action they are taking.
Q: Can I Negotiate Payments?
A: You can try
Collection agencies aren’t required to accept or agree to payment plans, but it never hurts to ask. They won’t often work out extended or long-term payment plans, but you may be able to negotiate a settlement or other payment plan.
Q: What Incentive Is There for Paying Off an Account in Collections?
A: You could be sued otherwise, and unpaid debts may affect credit scores more
If the item will stay on your report for just over 7 years, why make an effort to pay it? First, because if you owe the money, the collection agency can continue to pursue you. That can include being sued and having your wages garnished. Paying the account off gets rid of that worry.
Another reason to arrange payment on such a debt is that in some credit scoring models, paid collections accounts don’t hurt your score as much as unpaid accounts. Take care when making payment arrangements, though. You can reset the clock on how long the item appears on your report, and collection agencies might still come after you for the full amount due even if you’re making payments. Consider getting a written agreement with the collector so you have record of the terms both you and the agency agreed to.
Q: Can a Collection Agency Ruin My Credit?
Having a debt sent to a collection agency will hurt your credit score. However, if you keep your other credit accounts in good standing, they can help offset some of that negative impact over time.
Credit.com can help you identify strategies to rebuild your credit. Sign up to get your free credit score to keep track of your credit accounts and identify when it’s time to challenge inaccurate information.
Q: Can a Collection Agency Come After a Debt When the Statute of Limitations Is Up?
A: In some states
Each state has its own statute of limitations on debt, which can differ depending on the type of debt. After the statute is up, a collector can no longer sue you for repayment.
However, in some states, a debt collector can still collect on old debts that have passed the expiration of the statute of limitations because the debt still exists. The Fair Debt Collections Act allows debt collectors to continue contacting you via phone calls and letters even after the statute of limitations is up.
Q: Can a Medical Bill Go to Collections Even Though I Am Paying It?
A: Unfortunately, yes
If you are making small payments or paying late when you have a payment arrangement, your medical debt could go to collections. To prevent this, you might consider setting up a payment plan with the provider and getting it in writing.
Q: What Should I Do if I Don’t Know What the Debt Is For?
A: Ask the collector for debt verification
When a debt collector contacts you, they must send a debt validation letter. This letter should include, at minimum, the amount being collected, the name of the creditor seeking payment, and some deadline details for a response.
However, this letter doesn’t have to include where the debt originates and may leave you with more questions than answers. It’s recommended you respond to the letter with your own debt verification request letter. You can ask for the following information:
- Why the creditor believes this is your debt
- The total amount and age of the debt
- Whether the collections agency is licensed to collect debt in your state
Q: What Should I Do about Inaccurate Collections?
A: Try credit repair
If your score has been damaged by a collections account, consider working with a credit repair service to rebuild your financial footing. You can also get an exclusive discount to a trusted credit repair leader with ExtraCredit’s Restore It feature.