ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Collection Accounts

Updated on January 28, 2010

Collection Accounts Hurting Your Credit Scores?

Collection Accounts Are Becoming More Prevalent


Credit card companies are also experiencing major losses in our current economic environment. In light of this, they are also tightening up their guidelines and becoming pickier on who they send "Pre-Approved Offers of Credit".

They are also watching your accounts like a hawk. Not only accounts you have with them, but accounts you have with other credit card companies as well.

Your credit is being watched by all your credit card issuers more frequently than ever before. If you happen to become past due on any credit card you hold, then may be in danger of having your credit limit decreased or even frozen.

How does this affect your credit?

  • Decreasing your credit limit can cause your balance-to-limit ratio to go up.

In order to achieve the highest credit scores you can possibly have, you don't want your balance-to-limit ratio to exceed 30% (50% maximum) on any individual account, nor on the total amount of your revolving accounts combined. If a creditor decreases your credit limits on one or more accounts, this can have an immediate negative impact on your overall credit scores.

  • Credit card issuers are also lowering credit limits to an amount below what you currently owe.

If they do this, it can possibly put you into an immediate financial bind, because the next statement you get from that creditor is going to ask for the difference between your current balance on the account, and the new reduced credit limit. This amount they're requiring you to pay can amount to thousands of dollars, and if you're one of the ones affected, more than likely you're not going to be able to come up with an extra few thousand dollars to pay by the next due date.

What happens if you can't pay the difference?

If you cannot pay the "Amount Due" to the creditor after a certain period of time (usually about 90 days), then your account will be transferred to the Collections Department. Some creditors have internal collection departments, while others outsource these accounts to 3rd party Collection Agencies. Either way, the collector's primary task is to convince you to "pay-up".

Once a debt has been labeled a "collection account" on your credit, you're going to see an immediate credit score drop. Collection accounts are about as bad as it gets, short of bankruptcy, as far as your credit scores are concerned.

How do collection agencies work?

Collection agencies work with lenders and creditors in a couple different ways. In all cases, collection agencies purchase these bad debts for much less than the amount owed, usually for pennies on the dollar. The first way is for the agency to buy the bad debt so they own it outright. Another option is for the creditor or lender to consign the account to the collection agency. With this option, the creditor or lender agrees to pay the agency a percentage of whatever amount their collectors are able to recover. Percentages do vary, but some collection agencies can make as much as 50% in some cases.

Once the collection agency takes over the account, they give bonuses to their agents if they are able to collect most or all of the outstanding debt. In essence, the collectors make more in their pockets by making you pay more of the debt. This can lead to brutal and unethical collection practices at times.

How Collection Accounts should be handled:

  • 1. First and foremost, don't ignore the collection account or the debt collector. The problem can only get worse if you do, which may lead to wage garnishments, or even the company filing suit against you which could result in a judgment. Communicate with the collector and be honest about what you can pay and when you can pay it.
  • 2. It's always in your best interest to pay a collection account as soon as you possibly can, so you don't incur interest that is going to accrue on the account as long as you have an outstanding balance. This does not mean that you have to pay the entire balance. You need to keep in mind that these companies have purchased your bad debt for pennies on the dollar, so you should try to negotiate and settle the debt for as little as possible. You can start the negotiation process by asking them if they'll settle for 20% of the amount they're asking you to pay, then go up from there. Do not include any interest that is being tacked on as part of your negotiation process. The interest they're trying to charge you is just the icing on their cake.
  • 3. You should be aware that when you are "settling for less than you owe" on a debt with a collector, they are looking to receive the amount you negotiated with them immediately, so make sure you have the money to do so. Once you do come to an agreement, make sure you GET IT IN WRITING before you make the payment.
  • 4. At times, you may hear an unethical collector tell you whatever you want to hear if they think it will help them get you to pay the debt. If they offer to remove the collection from your credit report in exchange for payment, make sure you require them to put this offer in writing first. Collection accounts are never automatically removed just because they are paid, so don't fall for that trick unless you see it in print on the collection agencies letterhead referencing that exact account.
  • 5. Debt collectors are paid bonuses on how much they can collect in a calendar month. Keep this in mind during your negotiation process. Sometimes calling at the end of the month can be helpful and negotiations may be more to your advantage if that particular debt collector is trying to meet a goal.

In Summary:

Life does have its challenges and can throw you a curve ball from time to time, usually when you least expect it. In some cases like this, it may be impossible to avoid a collection account. You need to know that you do have many rights and there are many important things you need to be aware of.

For more information,



    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)