Can Collection Agencies Report to Credit Bureaus?

A collection agency is a company used by lenders or creditors to recover funds that are past due or from accounts in default. Their primary role involves pursuing payments owed to a creditor, often after the original creditor has made multiple, unsuccessful attempts to collect directly.

Collection Agency Reporting Practices

Collection agencies can report information about defaulted debts to the three major credit bureaus: Experian, TransUnion, and Equifax. This reporting occurs after a consumer’s account has gone unpaid for at least 120 days, at which point the original creditor may turn the debt over to a collection agency. Before reporting, debt collectors are required to attempt contact with the consumer.

Both original creditors and third-party collection agencies may report delinquencies or collection accounts. Agencies update the credit bureaus on the status of accounts every 30 days. These practices are governed by federal statutes such as the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA).

Impact on Your Credit Report

When a collection agency reports a debt, information is included on your credit report. This data includes the name of the collection agency, the original creditor’s name, the initial debt amount, the date of delinquency, and the current status of the account, such as “in collections” or “paid collection.” This entry appears as a “collection account” or “derogatory mark.”

The presence of a collection account can have a negative impact on a consumer’s credit scores. Payment history constitutes the largest factor in most credit score calculations, accounting for about 35% of the score. The most severe impact on credit scores occurs when the account is first reported, with the negative effect gradually lessening over time.

A collection account differs from a charge-off, which happens when a lender writes off an unpaid debt as a loss, usually after 120 to 180 days of non-payment. A collection account signifies the debt has been transferred or sold to a third-party agency. While a charge-off often precedes a collection account, a single debt can lead to both being reported, potentially compounding the negative impact. Both types of entries can severely affect credit standing. Newer credit scoring models, such as FICO 9 and VantageScore 3.0/4.0, may disregard paid collection accounts or certain medical collections.

Your Right to Dispute

Consumers can challenge information reported by collection agencies if they believe it is inaccurate or incomplete. The dispute process can be initiated directly with each of the three major credit bureaus or with the collection agency itself. When filing a dispute, include the account number, a clear explanation of the specific reason for the dispute, and any supporting documentation that substantiates your claim.

Under the Fair Credit Reporting Act (FCRA), credit bureaus must investigate disputes within 30 days of receiving them. This period can extend to 45 days if the consumer submits additional relevant information during the investigation. During this time, the credit bureau notifies the furnisher of the information, who must then conduct their own investigation and respond. If the disputed information is found to be inaccurate, it must be updated or removed from the credit report; otherwise, if verified, it will remain.

Additionally, debt collectors are legally obligated to send a debt validation letter within five days of their initial contact, providing consumers with 30 days to request verification of the debt if they do not recognize it.

When Information Leaves Your Report

Most negative information, including collection accounts, remains on a credit report for seven years. This seven-year period begins from the “date of first delinquency” (DOFD), which is the date an account first became delinquent and was not subsequently brought current, representing the initial missed payment that led to the collection effort.

Paying a collection account results in its status being updated to “paid” on the credit report, but it does not remove the entry before the seven-year mark from the DOFD. A “paid” status has less negative impact on credit scores than an “unpaid” status, and some newer scoring models may disregard paid collections.

There are specific exceptions, such as medical collection debt with an initial balance under $500 and all paid medical collection debt, which no longer appear on credit reports. Unpaid medical collection debt will not appear until one year from its original delinquency date. Once the seven-year period from the DOFD has passed, the collection account drops off the credit report; if it does not, consumers have the right to dispute its continued presence.