How Do Collections Get On Credit Reports?

I’ll get right to the point.  Collection agencies report accounts they are in the process of collecting to the credit bureaus.  This could be for any type of loan including medical bills, utilities, broken apartment leases and credit cards. The name of the collection agency is listed on the credit report instead of the credit grantor, who originally hired the collection agency.

Collection agencies begin collection efforts soon after the accounts have been written off by the creditor.  The debt is not only reported as a collection but also reported by the original creditor as a “charge-off.”  The original account is listed under the trade section of the credit report and includes your payment history on that account, which ends when the account is charged-off or sold to collections.  The collection agency reports a new account under their name as a 3rd party collection account.

Collection accounts contain information about both the original creditor and the collection agency. The original account (as reported by the collector) includes name of creditor, original amount, and recent balance.  Among other things, the collection agency information consists of agency name, account number, status (paid or not), and date assigned.  The original creditor information includes creditor name, credit limit or original amount, high balance, recent balance and recent payment history.

As you pay down/off the collection account, the balance should be reduced accordingly. When it is paid in full, it is then changed to reflect its new status as a “paid collection.”  The collection will remain on your credit report for seven years from the date of the original terminal delinquency.  The original account will also remain on your credit report for 7 years from the same date.  Both the original account and the collection account will be removed at that same time.

If this information is on your credit report, you aren’t penalized forever however it can be very damaging to your credit scores.  The more current the information, the more negative.  You still need to pay your bills on time and continue to move forward in a positive direction. You should do everything you can so that your accounts don’t go to collections, since this information is considered negative by credit grantors and your credit score.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.

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