In detail
A collection account appears on a credit report when a creditor has turned over an unpaid debt to a third-party collection agency. This can happen after several months of non-payment, depending on the creditor's policies and the terms of the original agreement. The original creditor may either sell the debt outright to a collection agency or assign it to an agency to collect on the creditor's behalf. Once the debt is placed for collection, the collection agency may report the account to one or more national credit reporting companies. The collection account then becomes part of the consumer's credit history as a separate tradeline. The presence of a collection account is considered a derogatory mark, similar to a charge-off, because it indicates that a debt was not paid as agreed. Under the Fair Credit Reporting Act (FCRA), collection accounts may generally remain on a credit report for seven years plus 180 days from the date of the first delinquency that led to the collection. After that period, the account must be removed from the report. Consumers have the right to dispute inaccurate or incomplete collection account information with the credit reporting company and the furnisher of the information. It is important to distinguish a collection account from the original debt. The original creditor's tradeline may also appear on the report, often marked as a charge-off or transferred. The collection account is a separate entry that reflects the collection agency's involvement. Both entries can affect credit history, but they are reported independently. The accuracy of the collection account, including the balance, status, and dates, should be verified by the consumer, as errors can occur.