Credit Debt

How Long Before Collection Agency Reports to a Credit Bureau?

If you owe funds to a collection agency, you may be curious about how long it takes them to report your activity to the consumer credit bureaus. Well, that depends on the collection agency. However, all collection agencies have to take specific steps before they can report that information—which usually takes about 30 days. Continue reading to learn more about collection agencies and their credit reporting process, along with some tips to make working with a collection agency as smooth as possible. 

What Exactly Is a Collection Agency?

A collection agency is a business that helps lenders collect debt /debts. If you do not pay a lender, they can turn to a debt collector/debt collection agency to either try and get their funds back or sell the debt altogether. Some bills, like medical debts, do not appear on your credit reports until debt collectors are involved. 

Does Having an Account in Collections Hurt My Credit Score?

Yes, having credit accounts in collections can hurt your credit score. For one, if your credit account is in collections, it is likely because you missed multiple payments and defaulted on the loan, which will hurt your credit score considerably. Another thing to remember is that a collection account will stay on your credit report for up to seven years, which can look bad to prospective lenders. 

Ways To Prevent Collection Accounts

Preventing your credit accounts from going into collections is simple. You should try and make your monthly payments on your bills on time. If you cannot do so, it is best to contact your lender and work on a repayment plan. Most lenders may offer flexibility if it means some kind of repayment from their borrower, and a debt collector is usually the last resort. 

The Steps Collection Agencies Must Take To Report to a Credit Bureau?

There are a few steps that collection agencies are required to take before they report to the major credit bureaus. They must first send you a validation notice, also called a debt validation letter. A validation notice has detailed information about the debt, including details on the original creditor, itemization of charges, current balance, etc. As long as a credit bureau reports or sends the validation notice in one of the following ways, they can then report your account:

  • Mail you notice about your debt and wait around 14 days (or a similar reasonable wait period) for a failure to mail notification. 
  • Send you an electronic notification about the debt and wait 14 days for a failure to communicate. 
  • Speak to you in person.
  • Speak to you over the phone.  

Once the validation notice is sent or relayed to you, the agency can move forward with reporting to all three major credit bureaus. Keep in mind that if the debt is invalid, you also have the right to dispute it! One reason why checking your credit reports often is so important. 

How Many Times Can a Collection Agency Report to a Credit Bureau? 

Once the validation notice is sent and the collection agency has done everything they need, they can continually report to the credit bureaus. Generally, you will see some kind of activity every 30 days, as most billing cycles are set up that way. And so, even if you are repaying your debt with the collection agency, do not be surprised if that activity shows up on your credit report—positive action is reported too! And as mentioned above, even after paid off, accounts with debt collection agencies can remain on your credit report for up to seven years. 

How To Ensure a Positive Impact on Your Credit Scores When Working With a Collection Agency?

You may be discouraged if your credit account goes into collections; however, even after this happens, there are things you can do which involve paying your collection agency, to help your credit scores from each credit reporting company. Here are some things to ensure a positive reflection on your credit report: 

Make Payments on Time

Your payments to your debt will be sent to credit reporting companies, and late payments can have a substantial negative impact on your credit scores. In fact, payment history is the most significant factor that determines your credit score. And so, it is imperative that you make your unpaid debt payments to your collection agency on time! 

Pay off the Debt Quickly if Possible

Paying off collection account balance will improve your credit. Paid off debt will always look better than having debt you still have to repay. This will also help your credit utilization ratio, the ratio between your debt and your available balances. And finally, the last reason you want to pay off your collection account as quickly as possible is that the sooner you pay it off, the sooner the debt will be removed from your credit reports. 

Be Open About Your Inability To Repay the Loan

If you cannot repay your debt with the credit collection agency, then it will be in your best interest to inform them immediately. In most cases, they may be able to accommodate, especially if it is a one-time payment! 

The Importance of Cooperating With a Collection Agency?

Cooperating with a collection agency is essential if they have one of your credit accounts. The good news is that most agencies are pretty flexible and accommodating. Here are some consequences that can happen if you do not communicate with your agency: 

Wage Garnishment

If a debt collector’s collection efforts fail, they can take you to court and ask for wage garnishment. If the judge grants them the ability to garnish your wages, it can really hurt your financial security. Wage garnishment is when a third party (in this case, a collections agency) has permission to withdraw money from your bank account.

Can Harm Your Credit Scores

If you do not cooperate with a debt collector, it can really hurt your credit score. Consider the number of late payments reported to the three major credit bureaus, loan default, etc. And so, if you don’t want to see a significant negative impact on your credit any further, then cooperating with your collection agency is the best way to proceed.

Can Mean Legal Fees and a Lawsuit

Legal fees can be expensive, and if a debt collector takes you to court, you may have to pay for those fees. Additionally, any legal proceeding can be stressful and time-consuming, and the best way to avoid all of this hassle is to work with your collections agency for debt repayment.

Can Add More Costs to the Loan

Another thing to consider when working with a debt collection agency is that delaying the repayment process can mean more fees are added to your debt, including collection costs. Over time this can add hundreds or even thousands of dollars of avoidable charges to your unpaid debt! And so, to pay the least amount, make sure you cooperate with them! 

Solutions if You Cannot Afford To Make Debt Payments Right Away?

Let’s say that a debt collector contacts you and requires a certain amount of payment right away. Well, if you cannot afford to make that payment or pay back any of the loan amount right away, here are some things you can consider:  

  • Negotiate With Your Collection Agency — Most debt collectors are pretty flexible, which means they may be willing to work with you to get even the most minor payments started. Communicate with them, and chances are that you will be able to work something out. On the other hand, if you have the money upfront, you may want to consider debt settlement which involves a lump sum of money to have the debt taken care of. 
  • Consider Refinancing Your Debt — Another option you can consider if you want to pay off your debt with manageable monthly payments is taking out another loan to pay off the existing one. This method may not work for everyone, as with bad credit, you may only have access to loans like a pay day loan or title loan, which are expensive! While good credit borrowers could get competitive loan repayment, making refinancing worthwhile.
  • Filing for Bankruptcy May Be an Option — If you are struggling severely with debt repayment and do not have the money to take care of your bills, you may want to look into bankruptcy. Bankruptcy can severely damage your credit for a decade or longer; however, it provides debt relief, which is necessary for some. Talk to a bankruptcy attorney and learn more about the effects of bankruptcy before making any significant decisions. It is also important to remember that there are some debts that bankruptcy will not discharge; these include federal student loans and child support payments. 

Being Smart About the Credit You Take On

Sometimes your finances can change, and you may not be able to pay your bills. And sometimes, debt is unavoidable, for example, with medical bills. However, in some cases, you may have signed up for a loan or credit card that you shouldn’t have. And so, to avoid collections in the first place, you must be smart about the credit you take on. Here are some tips: 

  • Make Sure You Know the Total Cost of the Loan Before You Take It On — Before you take out a loan or credit card, it is essential to know the actual cost. Your loan and credit card costs will incorporate interest and any other fees. Because the interest on a loan or credit card will be the most expensive part, ensure you understand the type of interest you are paying—as several interest types are available. Also, ensure you know about things like introductory offers with credit cards, so you aren’t surprised if things change after a few months. 
  • Avoid “Bad”/Unnecessary Debt — There is good and bad debt. Good debt involves any funding that helps build your credit and your future. For example, a mortgage or student loan can be considered good debt. While bad debt is anything unnecessary. For example, taking out a credit card for unnecessary purchases is regarded as bad debt.
  • Improve Your Credit for the Best Loan Terms — To get the most affordable loan options try and improve your credit score as much as possible. 
  • Don’t Become a Cosigner or Co-borrower for Someone Unless You Know Their Financial Situation — Becoming a cosigner or co-borrower comes with significant financial responsibility. If you aren’t 100% sure that the other person can repay their loan on time, don’t sign up to be a part of their loan process! 

When can a debt collector report my debt to a credit reporting company? | Consumer Financial Protection Bureau
What is a debt collection validation notice? | Consumer Financial Protection Bureau