Can Debt From a Credit Report Keep Going Into Collections?

It's no secret that collection accounts adversely affect your credit rating. Consumer credit reports maintain a record of both paid and unpaid debts to better inform future lenders of any risk they incur by doing business with a particular individual. Because collection accounts can result in prospective lenders turning down your application or charging you higher interest rates, federal law protects you against having these accounts appear on your credit history indefinitely.

Reporting Period

The Fair Credit Reporting Act sets the reporting period for collection debts at seven years. The reporting period begins not when the collection agency purchases the debt but when the original creditor first writes off the debt. Unethical collection agencies sometimes attempt to circumvent the federal reporting period by reporting inaccurate dates to the credit bureaus. Known as "re-aging," this process is illegal, and should it happen to you, you have the right to file a lawsuit against the collection agency.

Transferred Debt

Collection agencies do not hold on to consumer debts forever. Like other creditors, collection agencies sell their nonperforming accounts to other debt buyers. If you leave a debt unpaid, this process will continue indefinitely. In this way, your unpaid debt can keep going into collections as it is passed from one collection agency to another. Because collection agencies sell debts, two collection accounts may appear on your credit report for the same debt. Should this occur, you can notify the credit bureaus that both companies are reporting the same account and request that the bureaus remove the more recent of the two reports.

Considerations

An account does not have to appear on your credit report before being turned over to a collection agency. For example, your utility bills do not appear on your credit report, and paying your utility company on time does not benefit your credit score. If you leave your utility bills unpaid, however, the utility company will sell your account to a collection agency, which will insert a collection record in your credit files.

Repeated Collections

Depending on the type of collection agency that holds your debt, it is possible for a debt to go into collections repeatedly. If your creditor turns your account over to an in-house collection agency, the creditor still owns the debt. An in-house collection agency is merely a division of the original creditor's business. Thus, paying off your outstanding balance will result in the creditor pulling your account out of collections. Should you then default on payments a second time, the account will again go to the in-house collections department.