When Do Credit Cards Go to Collections?
Learn the timeline and process for credit card debt as it moves from late payments into collections.
When a credit card debt becomes unmanageable, it can transition into “collections.” This means the original creditor has either transferred responsibility to an internal department, assigned it to a third-party collection agency, or sold the debt to another entity. Understanding this process clarifies the financial consequences and potential actions by those seeking repayment.
Understanding Delinquency Stages
The journey toward debt going to collections begins with stages of delinquency, each carrying escalating consequences. A payment is first considered late the day after its due date, but creditors do not report it to credit bureaus until it is at least 30 days past due. At this 30-day mark, the credit card issuer will impose a late fee, often ranging from $30 to $40. While a single late payment can significantly impact a credit score, most issuers allow a brief grace period before reporting to credit bureaus.
If payment remains unmade and the account reaches 60 days past due, delinquency is reported to credit bureaus. This reporting can lead to a noticeable drop in credit scores. The credit card issuer may apply a penalty Annual Percentage Rate (APR) to the outstanding balance, making the debt more expensive. Communication from the creditor becomes more frequent at this stage.
As the debt progresses to 90 days past due, the credit score impact intensifies. The creditor may consider closing the account, and communication efforts will become more aggressive. The penalty APR, if not already applied, will be in effect. This period marks a decline in the account’s standing and signals growing financial risk to lenders.
By 120 to 150 days past due, the original creditor may close the account entirely or significantly reduce the credit limit. This action further damages the credit profile, as it reduces available credit and can increase credit utilization ratios. Each missed payment within these stages is recorded on the credit report and can remain there for up to seven years from the original delinquency date. The cumulative effect of these delinquencies can make obtaining new credit challenging.
When Debt Enters Collections
The point at which credit card debt transitions into collections often aligns with a “charge-off.” A charge-off occurs when the original creditor determines the debt is unlikely to be collected and writes it off as a loss on their accounting books. This happens after 120 to 180 days of continuous non-payment. A charge-off does not mean the debt is forgiven; the consumer still legally owes the money.
Once an account is charged off, the original creditor has several options for pursuing the debt. One approach is for the creditor to continue internal collection efforts through their dedicated department. These internal teams attempt to recover the balance while the original creditor retains ownership of the debt. This method is used to maintain some control over the collection process.
Alternatively, the original creditor may assign the debt to a third-party collection agency. In this scenario, the original creditor still owns the debt but contracts with an external agency to pursue payment on their behalf. The agency earns a fee based on the amount collected. This arrangement allows the original creditor to leverage specialized collection expertise without fully divesting from the debt.
A third path is the outright sale of the debt to a third-party debt buyer. Debt buyers acquire these charged-off accounts for a fraction of their face value. Once the debt is sold, the debt buyer becomes the new owner and assumes the right to collect the full amount from the consumer. The transition to collections can vary in timing based on the creditor’s specific policies, but it follows the charge-off timeline.
The Collection Process Unfolds
After a credit card debt has entered collections, whether through an internal department, an assigned agency, or a debt buyer, the collection entity will initiate contact with the consumer. The Fair Debt Collection Practices Act (FDCPA) regulates how debt collectors can communicate, prohibiting harassment or abusive practices. Collectors must provide a debt validation notice within five days of their first communication, which includes the amount of the debt, the name of the current creditor, and a statement of the consumer’s right to dispute the debt within 30 days. This notice helps ensure transparency about the debt being pursued.
The presence of a collection account significantly impacts a consumer’s credit report and score. This new entry appears distinct from the original charged-off account. A collection account can remain on a credit report for up to seven years from the date of the original delinquency, not from when the debt was sent to collections. While its negative effect may lessen over time, it continues to signal increased risk to potential lenders.
In some instances, collection agencies or debt buyers may pursue legal action to collect the debt. This can involve filing a lawsuit to obtain a court judgment against the consumer. The risk of a lawsuit increases approximately six months after payments have ceased, particularly for larger debt balances. However, a statute of limitations, which varies by state and ranges from three to six years for credit card debt, limits the time frame during which a collector can sue. Even if the statute of limitations has expired, the debt is still owed, though legal action to enforce payment becomes time-barred.