Do Collections Ruin Your Credit?

Collection agencies are third-party businesses that attempt to collect outstanding debts due to a creditor. Collection agencies can report that debt to credit bureaus if they have purchased the debt from your original creditor. When you are first faced with a collection letter, exercise your right to dispute the debt or request further information verifying that the debt is valid within 30 days of receiving the letter.

How collection agencies locate you

If your original creditor is a credit-card company, utility company, student-loan institution or medical provider, it will likely turn the debt over to a collection agency if you fail to pay for an extended period. Collection agencies will receive the most recent information the original creditor has about how to contact you.

Reporting the debt to credit bureaus

A collection agency must initiate contact with you before reporting the debt to credit bureaus. Typically it will first notify you of the debt by mail. The letter will include the original debt amount plus fees and information about disputing the debt. If a significant amount of time passes with no response from the debtor, the collection agency will report the debt to the credit bureaus, lowering your credit score.

How collections ruin your credit

Collection agencies can ruin your credit because theoretically the debt from the original creditor may appear on your credit report as a charge-off and the debt from the new collection agency will also appear on your credit. The original creditor is supposed to update your credit report by saying the account was sold to another agency. Collection debt can stay on your credit for seven years.


Get any and all payment arrangements in writing and signed. Get an agreement to have the collection item removed from your credit report if a certain amount is paid in full. Collection agents will tell you this is not possible, but they have this option.

Collection on your credit report

Contact all three credit bureaus and obtain a copy of your credit report from each. You get a free credit report per credit bureau once per year or if you were recently denied credit for any reason. Contact the collection agency (its address and phone number will be listed next to the debt). Make arrangements to either pay or dispute the debt. Dispute the debt with all three credit bureaus if there any inaccuracies. By law, the credit bureaus have 30 to 45 days to validate the debt or remove it.