LendingTree Academy

What happens when debt goes into collections?

Written by

Jonathan McFadden


January 6, 2020

You should always pay your bills and repay your debt, in full and on time. But we get it. Stuff happens and sometimes you get behind.

If you can’t catch up and the amount you owe on bills keeps going up month to month, your account could go into collections.

That means your creditor has sold or turned over your debt to a collection agency, which is now responsible for getting you to pay the debt.

That’s not a good thing. It creates a huge blemish on your credit report and can create a lot of difficulties for your overall financial situation.

So, how exactly does it affect credit? 

Accounts in collections show up as delinquent on your credit report, which can severely harm your credit score.

It’s like getting a negative mark on your “permanent record” that follows you around for years. (Side note: permanent records don’t follow you around for years.)

A single delinquency can tank your score 40 to 70 points. That means if you have a 760 credit score, it could drop to 690 or lower.

Plus, it takes a long time for collection accounts to come off your credit report. Like seven years long. Even if you pay off the debt, the delinquent account doesn’t disappear before the seven years are up. Seriously, bummer.

How does this happen in the first place?

Typically, accounts go into collections if you’ve failed to pay a bill. It could be a late or overdue credit card bill, phone bill, medical bill, even your utilities.

Your creditor may have spent six months or more trying to get you to repay your debt before hiring a debt collection agency to get the money from you. The creditor may even sell your debt to the agency, so it’s no longer their responsibility.

That debt collection agency will then reach out to create a payment plan or arrange a settlement to satisfy the debt. If you don’t pay the debt, or fail to make a plan to do so, the collection agency could take you to court. If you lose the case, you’ll have to pay the debt, along with any associated legal fees. The debt collector may be able to garnish your wages, take money in your bank account or place a lien on property you own.

Do you have any protections?


Debt collectors have a reputation for being aggressive and bombarding people with phone calls, emails, letters, even text messages. Legally, they can’t call you before 8 a.m. or after 9 p.m., or at work if you’ve said you can’t receive calls there. If you feel like a debt collector is harassing you, there are steps you can take to protect yourself (although it won’t shield you from having to repay the debt).

We recommend going to the Consumer Financial Protection Bureau, a federal agency looking out for customers’ financial interests. Its website has tons of information on how to deal with collection agencies, including a guide on knowing your rights and responding to debt collectors.

So, how can you avoid this?

Don’t take on more debt than you can handle and always repay your bills on time. Work with your creditors if you realize you may not be able to make your payments because of a life change or some other circumstance.

For instance, if you’re struggling to repay your student loans, consider switching to an income-based repayment plan. That could lower how much you owe and, after about 20 years of repayment, your remaining balance might be forgiven.

If you do miss a payment and your creditor reaches out, don’t ignore them! Even if the calls and letters stop coming, it doesn’t mean your creditor is letting you get off scot-free. Trust us, they’re not forgetful.

It’s like playing that board game Life. If you want to finish the game, you have to repay your debts. There’s no getting around it. The bottom line: pay what you owe as soon as you can.

What if you think the collections is wrong?

Mistakes happen, and sometimes incorrect stuff shows up on your credit report. If you know your account should not be in collections, file a dispute with the credit bureau reporting it.

If you see debt reported on your credit report that doesn’t belong to you because it’s in someone else’s name, send a written request to have the collections information taken off your report.

Need help? Go to the CFPB, where you’ll find resources like sample letters that help you frame a dispute with a debt collector. As bad as collections seems, you’re not powerless in the process.

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