Can a Collection Agency Raise Your Debt?

Depending on your original credit account agreement, collection agencies can increase the amount of debt that you owe in several ways. Collection agencies include third-party debt collectors working in conjunction with the original creditor and debt buyers who purchase the debt from the original creditor. Not only can these collection agencies raise your debt, they can have a significant negative impact on your credit score.

Collection Accounts

Debt collectors and debt buyers can list delinquent credit accounts as collection accounts on your credit report. These collection accounts often appear to have a different balance from the original creditor accounts because the collection agency added accrued fees that raise your debt. Original creditor accounts may also remain on the report and are most often listed as a charge-off. Both types of accounts impact your credit score negatively.

Accrued Fees

Interest is the most common accrued fee that a collection agency can use to raise your debt. Accrued fees are limited by the specific wording of the original credit agreement. Other common fees include legal fees related to collecting the debt. The term "accrued" means that the fees are added to the balance at specific intervals, such as monthly for interest rates. Each time fees are added, your debt increases. As interest is added to the accrued balance, your debt can blossom over time if left unpaid.

Judgments

Debt buyers and third-party collection agencies may choose to sue or recommend suing you for the unpaid debt, plus all accrued fees. If they win the lawsuit, they will receive a judgment against you. As part of the judgment decree, the court may add legal and court fees to the debt, effectively raising the debt on behalf of the collection agency. In addition, judgments accrue a specific amount of interest rate each year that the balance remains unpaid.

Timing

The Fair Credit Reporting Act dictates the length of time during which collection agencies may legally report a debt. Debts may legally appear on your credit report for up to seven years from the last payment date on the original credit account. The seven-year time frame does not limit collection agencies from raising your debt through accrued interest and other authorized fees. Debt collectors can potentially increase unpaid debt indefinitely, but they may only report it for seven years. State statutes of limitations dictate the time frame during which collection agencies may win a judgment lawsuit against a consumer. If a debt is out of statute, past the SOL date, collection agencies can still win a judgment for the debt if the consumer neglects to defend his case.