What Is a Collection on Credit Card Debt?

When you make purchases using a credit card, you must repay that debt over time by making periodic payments to the credit card company. Should you stop sending in the minimum monthly payment your credit card provider requires, it will forward your account to its collection department and, eventually, to a collection agency.

Facts

Credit card companies maintain departments dedicated solely to collecting overdue consumer debts. Representatives working in these departments contact card holders by mail and by phone to notify them of their delinquent account and recover any missed payments.

Internal collection departments typically collect credit card debts that are less than six months old. These departments occasionally maintain a name and address separate from the parent company in order to create the illusion of a third-party collection agency -- which some debtors take more seriously.

Features

After six months, most credit card companies "charge-off" unpaid accounts and sell them to independent debt buyers. Once a third-party collection agency purchases your unpaid credit card balance, you must pay the collection agency rather than your original creditor. Like internal collection departments, third-party agencies also use telephone calls and letters as their primary techniques for successful debt recovery.

Effects

The consequences of a credit card collection are severe. Perhaps the most notable consequence is the credit damage you incur merely by missing a payment. Your credit card provider reports your missed payments to the credit bureaus. The more payments you miss, the further your credit score falls. Once the company sells the debt to a third-party collector, the new creditor also reports the derogatory debt to the credit bureaus -- tarnishing your credit rating even more.

In addition to credit damage, your credit card company will charge you late fees on the amount you owe and, by missing at least two consecutive payments, gains the right to raise your interest rate.

Benefits

The collection industry has a negative reputation for verbal abuse and harassment. While debt collectors do not have to be friendly to debtors, federal law prohibits abuse. The Fair Debt Collection Practices Act (FDCPA), for example, forbids collectors from using profanity, threats of physical harm or any language that could be construed as abusive -- such as shouting -- when collecting debts.

Thus, if your credit card company turns your account over to a collection agency, the collection agency has the right to collect the debt, but must abide by federal limitations when doing so. The FDCPA's guidelines do not apply to a credit card company's internal collection department.

Warning

If a collection agency cannot compel you to pay off the debt through standard collection activity, it has the option to file a lawsuit against you. Depending on your state's laws, a lawsuit may provide the agency with the right to garnish your wages, bank accounts or attach liens to your personal property.