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Can a Collection Agency Legally Put Their Account on My Credit Report?

Dear Experian,

If a bill is sold to a collection agency, can they legally put it on my credit report?

- FGS

Dear FGS,

Once a debt is sold to a collection agency, they can begin reporting that account to the credit reporting agencies. The collection agency becomes the legal owner of the debt and has the right to begin collection efforts. Once reported, both the original account and the collection account will appear on a credit report.

Why Do Both Accounts Show on My Report if I Only Owe One Debt?

Your credit report is a historical record of your accounts and payments. The original account, even if it's written off as a loss to that lender, will remain part of your history for seven years from the original delinquency date. The original delinquency date is the date of the first missed payment that led up to the account being charged off.

Once the debt is sold, you no longer owe the original creditor. Instead, you now owe the collection agency. The original account will typically appear on the report as charged off and will show as either closed or transferred to another company. The collection agency account will appear separately on the report as open and outstanding debt.

The open date of the new collection account will reflect the date that the account was purchased by the collection agency, but it will still be removed seven years from the original delinquency date on the initial account.

Does Paying Off a Collection Account Help Me?

Whether paying off a collection account will help your credit score depends on the credit scoring model being used to calculate it. There are many scoring models lenders may use, and some newer models do not include paid collection accounts in the calculation of your score. If a lender uses one of these models to get your score, a paid-off collection account won't work against you.

But even if your lender uses a credit scoring system that does include paid collections, most lenders view a paid collection more favorably than an unpaid one. Paying it off shows lenders that while you've had some credit difficulties in the past, you've since honored your obligations and taken care of your debts. Some lenders, particularly mortgage lenders, will require you to pay any past due debts before they'll approve you as a borrower.

Should I Accept a Collection Agency Settlement Offer?

Sometimes, a collection agency will offer a lesser amount that you can pay in order to "settle" the debt. While tempting, you should know that a settlement is considered negative because it means you did not pay the full balance owed. However, if you are simply unable to pay the full balance, settling the account is better than not paying it at all. A settled account is still likely to be viewed more favorably than leaving the debt outstanding.

Thanks for asking.

Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.</small