Collections (Debt)
The process of pursuing unpaid debts, often by a third-party collection agency.
What is Collections?
Debt collections refers to the process of pursuing payment on delinquent accounts, carried out either by the original creditor or by a third-party collection agency that has purchased the debt at a discount. When an account enters collections, it is reported to credit bureaus and significantly damages the borrower's credit score. Under the Fair Debt Collection Practices Act (FDCPA), collectors must follow rules about when and how they can contact debtors. A collection account may remain on a credit report for up to seven years from the date of the original delinquency.
Example
A medical provider sells a $600 unpaid bill to a collection agency for $120. The agency contacts the debtor seeking the full $600. If unpaid, the collection appears on the debtor's credit report, potentially dropping their score by 50–100 points.
Source: Consumer Financial Protection Bureau — Debt Collection