When you fail to make payments to a creditor for debts incurred, the creditors will often transfer this debt to a collection agency. This can have a variety of effects on your credit score.
Debt Transferred to a Collection Agency
Whenever you have debt transferred to a collection agency, your credit score will be adversely affected. This is because 30 percent of your credit score is based on your past payment history.
Reporting Information to the Major Credit Bureaus
If a debt is transferred to a collection agency, both the creditor and the collection agency is likely to file a report with the major credit bureaus. This almost assures that this debt will show up on your credit report.
Will Making Payments to the Collection Agency Improve your Score?
This depends on whether you have a zero or balanced trade line. Making payments on a zero trade line will not improve your credit score, while payments on a balanced trade line will.
Zero and Balanced Trade Lines
A zero trade line means that you no longer have a balance with the creditor. A balanced trade line means that you do have a balance with the creditor.
Decreases With Time
As time passes, the debts passed on to a collection agency will have a smaller effect on your credit score.
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