Why Your Credit Card Was Sent to a Collection Agency

If a collection agency has contacted you about a credit card debt you owe, you’ve probably wondered why this company is calling you when they’re not the company you owe. Think back to the last time you made a payment on this credit card. Chances are, you haven’t sent payment to your credit card issuer for several months and that’s why you’re being contacted by a collection agency.

Collection agencies are third-party companies who have the sole purpose of collecting unpaid debts. Credit card companies often assign or sell their unpaid credit card balances to collection agencies after the debts go unpaid for a certain amount of time.

Collection Agency Assignments vs. Debt Sales

When credit card companies assign the debt to a collection agency, the credit card company still owns the debt. If the collection agency convinces you to make a payment on the balance, then the collection agency gets to keep a portion of the payment and the credit card company gets the rest.

Some credit card balances are sold to collection agencies for a small percentage of the outstanding credit card balance. In that case, the credit card company is no longer in the picture. Anything you pay to the collection agency is for the collection agency to keep.

Avoid a Collection Agency

You can avoid having your debt sent to a collection agency by making timely payments on your debts. Even if you miss a payment, you have about 150 days from that missed payment before the debt is sent to a collection agency. Beware that once you miss a payment, the payment that’s required to get caught up will get larger and larger each month. So, it’s easier to stay current on your payments than it is to get caught up once your behind.

Debt Collections Affect Your Credit

When accounts are sent to a collection agency, a collection entry is added to your credit report. This is one of the worst types of entries that can appear on your credit report and it’s devastating to your credit report. Even before the collection account is added to your credit report, your credit score has already been hurt by the late payments reported from the credit card company. Having a debt collection on your credit report will affect your ability to apply for a credit card or loan in the future.

Like most other negative credit report information, a collection account will stay on your credit report for seven years. Fortunately, it will hurt your credit score less and less as it gets older and as you add more positive information to your credit report.

Paying Off a Collection

If you want to pay a collection account, you’ll usually have to pay the collection agency, even if the original creditor still owns the debt. In most situations, the credit card company’s contract when the collection agency prevents the credit card issuer from receiving your payment.

Even after you pay a collection account, it will stay on your credit report, so it’s better to avoid having your credit card sent to a collection agency.