At some point, you may have pulled your credit report and noticed an account labeled "collection." If you're like many others who've never heard this term, you undoubtedly wondered what is a collection, how did it get on your credit report, and what does it mean.
What is a Collection?
A collection account is an account that has been sent to a third-party debt collector by the original creditor. Accounts are typically sent to debt collectors after you have missed a few payments on your account.
Debt collectors are people who specialize in collecting unpaid debts for others. When a business's customers owe them money, they may enlist a debt collector in helping collect what is owed.
Different creditors and lenders have different rules on when accounts are sent to collections. Reviewing your credit card or loan agreement will give you some information about your creditor's timeline.
How Collections End Up On Your Credit Report?
Your credit report contains information about your credit accounts, e.g. credit cards, loans, etc. Most, if not all, of your creditors send monthly updates about your payment status to your credit report.
When an account is sent to a collection agency, either the original creditor or the collector updates the account on your credit report with a "collection" notice. The creditor doesn't have to tell you that your account is being sent to collections. However, the debt collector does have to notify you that they are collecting the debt before they can take any action.
What Does It Mean For Your Credit?
A debt collection is one of the worst things that can appear on your credit report. A collection account shows that you have been seriously delinquent on an account. Your credit score will drop if a collection appears on your report. You may be denied for credit cards and loans in the future, especially if the collection is recent or remains unpaid or both.
You can lessen the effects of a collection on your credit score by paying it off. As time passes, the collection account will have a less significant impact on your credit. Continuing to pay all your other bills on time will also help your credit score recuperate from a debt collection.
