What Happens when My Account Goes to Collections?

If you’ve been dodging a creditor because you don’t have enough money to pay a bill or debt, the creditor, utility company, or bank may sell your past-due account to a collection agency.

So, how does an account get sent to collections, and what should you do when you receive a letter or call from a collection agency demanding payment?

Learn how the collections process works and the options for paying the debt below.

1. Missed or late payments can lead to collections

When you miss a credit card, loan, utility or other payment, the creditor could send your account to collections. That probably won’t happen right away, though.

“The creditor may give you a grace period during which to make good on the bill,” according to major credit bureau Experian. “Typically, it takes longer than 30 days for an account to be sold to a collection agency or placed into collection status.”

2. The creditor sends your account to collections

When your account is past due, the creditor will typically contact you at least a couple of times, offering an opportunity to pay the bill and avoid having your account sent to collections.

If you don’t pay up, the creditor may turn your account over to its own collections department or send the account to a collection agency after giving up on collecting efforts.

When the creditor sends your account to a collection agency, the debt will negatively affect your credit report, appearing on the report as “charged off,” which indicates the creditor gave up on collecting a debt you failed to pay.

Find out: When Collection Falls Off Your Credit Report

3. You can tell the collection agency to stop contacting you

If you notify the debt collector in writing that you’re asking it to cease further communications, it must abide by your instructions, according to the Fair Debt Collection Practices Act (FDCPA.

Once the collection agency receives your letter, it may only contact you to notify you that it intends to invoke “specified remedies” as a debt collector such as filing a lawsuit or garnishing your wages. The collection agency can also contact you to tell you that it’s stopping collection efforts.

Ceasing communications doesn’t mean you should ignore the debt, however. If you owe the amount specified by the collection agency, try to work out a payment plan with the collection agency instead.

Find out: How to Write a Cease and Desist Letter to Stop Collector Harassment

4. You’re allowed to dispute inaccuracies

If the collection agency is pursuing payment on a debt that you don’t owe, the FDCPA allows you to dispute the debt in writing within 30 days of the initial communication from the collection agency and halt collection efforts until the agency verifies the debt, according to the Consumer Financial Protection Bureau (CFPB).

The collection agency must provide the name of the original creditor, the amount owed, and what to do next if you don’t believe you owed the debt. Intimidated by letter writing? Use the CFPB’s sample letter to dispute the debt.

Find out: How to File a Complaint Against a Debt Collection Agency

5. You still owe the debt

When your account goes to a collection agency, you still must pay the debt, so don’t simply ignore the collection agency’s calls or letters.

Instead, find out if you can arrange a payment plan with the agency. Even better, you may even be able to negotiate a lump-sum payment for a lower amount if you can pay immediately.

6. The collection account appears on your credit report

Once the creditor sells your account to collections, the collection agency can report the collections account and it will show up on your credit report for up to seven years. Once seven years has passed, the information will automatically drop off your credit report.

Collection accounts on your credit report can lower your credit score significantly, since payment history accounts for around 35% of your credit score, according to Experian.