What are collections on your credit report?
A collection account on your credit report is a record of a defaulted debt. It usually represents a debt that has gone unpaid for at least 120 days that the creditor has turned over to a debt collector. The collector can be from the creditor’s collection department, a third-party collection agency or a debt buyer who assumes the debt.
Once they contact you about the debt, the collector typically notifies the credit bureaus – Experian, TransUnion and Equifax – that they have taken over the debt and indicates the amount they are seeking. That information then appears on your credit report, where it can negatively impact your credit score.
What happens when an account goes into collections?
A creditor typically sends an account to collections only after you’ve missed several consecutive payments, and only after multiple attempts to reach you to arrange payment. If those efforts fail and they turn the debt over to a collection agency, here’s what happens:
- The collector issues a debt validation letter.
- When the debt collector takes over the debt, they will reach out to you by phone, text, email or postal mail to attempt to collect the debt.
- Within five days of that initial contact, they must send a debt validation letter by postal mail or email. The letter spells out the source of the debt, the amount you owe and contact information for the collection agent.
- If you think any information in the letter is inaccurate, you have 30 days from receipt of the letter to request verification in writing.
- The collection account may appear in your credit report.
- The debt collector may report the collection account to the credit bureaus.
- If the collection is related to one of your existing debt accounts, that account will be marked closed or transferred.
- The new collection account will appear as a separate account on your credit report.
- Efforts to get payment will continue—or escalate.
- By law, a collection agent may attempt to gain payment by phone, email, text message or social media but they cannot harass you.
- You have the right to ask collectors to stop contacting you.
- The collector might sue.
- A collector may file a lawsuit against you and, if successful, may be able to garnish your wages or bank account.
What debt can be sent to collections?
Unpaid debts that can go into collections include all consumer debts normally tracked on your credit report (such as student loans, car loans, mortgages and credit cards) and many other financial obligations, if you fail to pay them as agreed. These include:
- Utility bills
- Professional services (e.g., medical or dental treatment, contractor services)
- Government-imposed fines or fees
If you default on a debt secured by collateral such as a car loan or mortgage, the creditor might pursue repossession (in the case of a vehicle) or foreclosure (in the case of real property), then sell the collateral to recover its money. If the sale doesn’t recover everything you owe, the outstanding deficiency balance could be sent to collections.
How long do collections stay on your credit report?
A collection account can stay on your credit report for up to seven years from the debt’s original delinquency date. That’s the first in the series of missed payments that led to the debt being turned over for collection.
How collections impact your credit
Late payments and collection accounts could hurt your credit scores as long as they appear on your credit report. Their exact impact can depend on what else is in your credit report, the nature and amount of a given collection account and whether or not you pay the collector the amount they seek.
For more information on managing debt, see the following articles: