When a debtor falls behind in paying a creditor, the creditor will often choose to sell the debtor's debt to another party. This party will then attempt to collect on the debt, either providing a portion of the earnings to the original creditor or keeping all of the money for itself, depending on the financial agreement. A person's debt can be sold many times. While debt will hurt a person's credit score, the sale of debt all by itself won't harm it.
Selling Debt
A debt is similar to a bond or other financial security related to money owed by one party to another.The person who is owed the debt can sell this payment obligation to another party. The debt can either be sold for cash payment, in which case the new owner has told control of the debt, or on consignment, meaning that the new owner will pay the old owner a portion of the money collected on the debt.
Credit Score
A credit score is compiled using data presented in a credit report -- a document listing information related to a person's lending history. Only information listed on this credit report can used to compute a person's credit score. When a debt is transferred from one party to another, this transfer is not noted on a person's credit report. Therefore, the sale of debt from one party to another will not hurt a person's credit score.
Credit Consequences
However, while the transfer of a debt will not hurt a person's credit score, the fact that the debt remains outstanding will hurt a person's credit score. In the majority of cases, a debt is sold only if the debtor is late in making payments. Anytime a person fails to make payments on an account in the time agreed, this will hurt his credit score. So, the sale of a debt suggests a person's score is currently depressed.
New Creditor
While a person's score will not change with a new creditor, the new creditor may take a new approach to collecting on the debt. While previous creditors may merely have written letters and made phone calls attempting to collect on the debt, a new creditor make take more severe measurements. In most instances, creditors are allowed to seek the freezing of a debtor's bank account or a garnishment of his wages to attain payment on the debt.
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