When Is a Credit Card Account Considered a Collection Account?

If a credit card company does not receive payment on a credit card balance from the account owner, it will eventually charge off the debt. Credit card companies typically sell charged off debts to collection agencies rather than continuing to contact the debtor about the balance.

Significance

An overdue credit card account isn't considered a collection account until the original creditor sells the debt to a collection agency. Until that point, the debt is merely a "defaulted" account. This is because the Fair Debt Collection Practices Act which governs collection laws does not apply to the original creditor.

Time Frame

Most creditors charge off and sell credit card accounts that remain unpaid for 180 days. This allows the company to remove the defaulted account from its accounting books and claim a tax deduction for the debt.

Effects

Once a credit card company sells a debt to a collection agency, the collection agency owns all rights to the debt. It may telephone the individual, send him collection letters or report the account to the credit bureaus, which subsequently damages the debtor's credit rating.