How Long Does It Take for a Credit Card to Go to Collections?

Credit card collections represent a process where a lender seeks to recover outstanding debt from a borrower who has failed to make payments as agreed. This often involves the original creditor attempting to collect the debt directly or, in many cases, engaging a third-party collection agency. Sometimes, the original creditor might even sell the debt to another company known as a debt buyer. The primary aim of this process is to recoup the money owed on a delinquent account.

The Path to Collections: Missed Payments

The journey toward credit card collections begins with a single missed payment. Once a payment due date passes without the minimum amount being remitted, the credit card account becomes delinquent. A payment missed by only a few days might not immediately be reported to credit bureaus, but it will incur a late fee, which is added to the outstanding balance.

Interest charges continue to accrue on the outstanding balance, potentially at a higher penalty rate. The original credit card issuer will begin communication efforts, often with automated reminders via phone, email, or mail. These contacts serve as a notification of the missed payment and an encouragement to bring the account current.

When a payment is 30 days or more past due, the credit card issuer can report the delinquency to the major credit bureaus. This reporting negatively impacts the cardholder’s credit score, as payment history is a substantial factor in credit scoring models.

A single 30-day late payment can cause a significant drop in a credit score. Even if the payment is made after 30 days, the late payment mark will remain on the credit report for up to seven years from the date of first delinquency. Continuous missed payments deepen the negative effect on the credit profile.

Key Milestones Before Collections

As delinquency progresses, the consequences become more severe. When an account is 30 to 60 days delinquent, the original creditor’s communication intensifies. They will send notices and make calls, outlining the increasing balance due to accumulated late fees and interest.

At this stage, the credit card issuer may also offer payment arrangements or hardship programs to encourage the cardholder to resolve the outstanding balance. However, the account will be reported as 60 days past due to credit bureaus, further damaging the credit score. The longer the delinquency, the greater the negative impact on creditworthiness.

When a credit card account reaches 90 to 120 days delinquent, the risk of the original creditor freezing or closing the account increases. At this point, the issuer may determine the account poses a higher risk of non-payment and take steps to prevent further charges. This action restricts the cardholder’s access to credit.

The financial institution will report the account as 90 or 120 days past due to credit bureaus, which can lead to a decrease in credit scores. The impact on credit is cumulative, meaning each successive month of delinquency adds to the damage. These derogatory marks make it challenging to obtain new credit.

The “charge-off” occurs around 180 days of continuous non-payment, before a debt formally enters third-party collections. A charge-off is when the original creditor formally writes off the debt as a loss on their books. This does not mean the debt is forgiven or erased; it signifies that the creditor no longer expects to collect the debt through its own internal efforts.

The charged-off debt is no longer considered an asset for the original creditor. This prepares the debt for either sale to a debt buyer or assignment to a third-party collection agency. Despite the charge-off, the consumer remains legally obligated to repay the debt.

A charge-off has a negative impact on a credit report and credit score, often remaining for seven years from the date of the first missed payment that led to the charge-off. It indicates severe delinquency and can hinder a consumer’s ability to secure loans or other forms of credit. The original creditor ceases active collection efforts after this point, allowing external entities to pursue the debt.

When Debt Enters Collections

After a credit card account is charged off by the original creditor, the debt transitions to a new phase of collection. This involves either the sale of the debt to a debt buyer or its assignment to a third-party collection agency. Debt buyers purchase the debt outright, often for a fraction of its face value. A collection agency is hired by the original creditor to collect the debt on their behalf, earning a percentage of the amount recovered. This marks the formal entry of the debt into collections.

Upon acquiring or being assigned the debt, the collection agency or debt buyer will send a debt validation notice to the consumer. Under the Fair Debt Collection Practices Act (FDCPA), this notice must be provided in writing within five days of the initial communication with the consumer, if not included in the first communication itself.

This validation notice must include specific information, such as the amount of the debt, the name of the creditor to whom the debt is currently owed, and a statement advising the consumer of their right to dispute the debt within 30 days. During this 30-day period, if the consumer disputes the debt in writing, the collector must cease collection efforts until the debt is verified.

In addition to sending validation notices, collection agencies will make phone calls to the consumer to arrange for payment. The FDCPA regulates these communications, outlining specific rules regarding when and how debt collectors can contact consumers, prohibiting abusive or harassing practices.