Your credit report and credit score help determine whether you will get approved for loans or credit cards, what credit limit you can have and what interest rate you will be charged. If you had an unpaid account in the past and the original lender sold that account to a collection agency, you likely have two black marks on your credit report. The original lender and the collection agency both can add information to your credit report. That information will remain on your credit report for years.
Bad Debts
If you go without paying your monthly bill for an extended period, the lender eventually will consider the debt uncollectible and designate it as a write-off or charge-off. Bankrate reports that the lender will typically close your account after 120 to 180 days of nonpayment. Once the lender closes the account, it will change the status on the account to a charge-off. A charge-off means you still owe the debt, but the lender believes the debt will not get paid. A charge-off will show up on your credit report.
Collection Agencies
Either the lender will use its internal collection services to try to collect on the debt, or it will sell the debt to a third-party collection agency. Once the collection agency obtains the debt, it will notify the credit bureaus. The credit bureaus will add the collection agency account to your credit report. The collection agency will contact you by phone or by mail to attempt to collect the debt.
Credit Reports
The original account and the collection agency account both can appear on your credit report. The original account will show several missed payments as well as the charge-off status. The collection agency account will show an open and unpaid collection. Both accounts represent negative credit entries on your credit report and will lower your credit score. Bankrate reports that both accounts can remain on your credit report for seven years.
Tips
You cannot remove an account from your credit report that legally belongs to you. However, you can reduce the negative effect a collection has on your credit score by paying the debt. Many collection agencies will work with you to settle the debt for a portion of what you owe. Before paying the collection agency, make sure it agrees to update your credit report to a paid status. When an agreement is reached, obtain written confirmation of the agreement from the collection agency before you send in payment.
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