When an Account Is Sold Does it Come Off Your Credit Report?

Defaulting on your debt means the creditor has deemed the account noncollectable. The account is written off as a loss by your creditor. However, your liability does not end. Your creditor can sell the account to a third-party collection agency, which can still pursue you for the amount owed. These events get reported to the credit rating agencies and impact your credit score.

Charge-off

A credit account usually is charged off after several consecutive months of non-payments; however, it is up to the lender's discretion when an account is written off an noncollectable. Before the debt is charged off, your creditor will make numerous attempts to collect on the debt. It reports every stage of your delinquency to the credit rating agencies beginning 30 days after you fail to make a payment until the account is charged off. Your credit report reflects the charge-off, and it will remain on file for seven years.

Collections Agency

Several things can happen when your account is charged off. Your creditor may decide to continue pursuing you for the debt, or he may sell the account to a third-party that will pursue collection efforts. The fact that the account has been sold shows up on your credit report. Thus, your report shows that the account is now in collection.

Default Judgment

A creditor or collection agency may decide to sue you for the amount owed. It can file a lawsuit seeking to recover the original debt plus additional expenses, such as lawyer and court fees. Your creditor is required to serve you notice by mail of a lawsuit against you. If you fail to respond, the court grants your creditor a default judgment, which the creditor can use to seek to garnish your wages or freeze your bank account until it recovers the debt. The judgment also appears on your credit report.

Negotiating a Settlement

If you cannot pay your debt in full, settling your account with your creditor may be the next best option to avoid further collection action. In many instances, you can negotiate a settlement agreement even if you receive a default judgment. The account will show as settled on your credit report, which is better than it showing as a charge-off. A charge-off is one of the worst marks you can receive on your credit report, because payment history is a major component in calculating your credit score.