If you fail to pay an unsecured debt that you owe, such as a medical debt or credit card debt, the creditor to whom you owe the debt may transfer it to a collection agency. A collection agency will then report the debt to the credit bureaus.
Significance
A collection account that appears on your credit report is always considered a derogatory entry and will damage your credit score.
Time Frame
Collection accounts can appear on your credit report for 7 years from the date you made your last payment to the original creditor.
Facts
The Fair Debt Collection Practices Act states that any collection agency reporting a bad debt on your credit report must be able to prove the accuracy of the debt. If it cannot, the entry must be removed from your credit file.
Misconceptions
Paying a collection account does not result in it being removed from your credit report.
Features
The date a collection account is scheduled to be removed from your credit report often appears within the trade line of the debt.
Considerations
The credit bureaus do not always remove collection accounts in a timely manner. Consumers must regularly monitor their credit reports and notify the credit bureaus of any obsolete items that still appear.
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