Collection Account

When a borrower falls far behind on payments, the original creditor may stop trying to collect the debt itself. It may hire a collection agency to recover the money on its behalf or sell the debt outright. Once this happens, a collection account may appear on the borrower's credit report.

Collection accounts can come from many types of unpaid bills, including credit cards, medical bills, utility bills, phone contracts and personal loans. For example, an unpaid phone bill of 300 might be sent to a collection agency, which then reports the debt to the credit bureaus.

In the United States, a collection account typically remains on a credit report for seven years from the date of the first missed payment, even if the debt is later paid. Paying it off is still generally beneficial, as newer scoring models may ignore paid collections. US law, including the Fair Debt Collection Practices Act, limits how collectors can contact and treat consumers.

In the United Kingdom and many other countries, the comparable situation is a defaulted account being passed to a debt collection agency, with the default recorded on the credit file.