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A collection account is an account that is seriously past due and that a creditor has turned over to a collection department or even a collection agency for more aggressive action. The decision about when to designate a past due account as a collection account varies by business. In some cases, a business may continue to maintain ownership of the account after it has gone to collections. Many businesses, however, may simply sell a delinquent account at a discount to a debt factoring company, also known as a debt buyer. In many jurisdictions, a collection account on a credit report can significantly damage a person's credit score and history, though many jurisdictions give consumers the right to challenge the validity of a debt and its reporting to credit bureaus.
Many businesses are willing to work with customers who are unable to pay their bills right away. There are situations, however, in which a debtor allows an account to become seriously delinquent and is unable or unwilling to bring his or her account current. In such cases, a creditor may eventually decide that it is unlikely that the account will be collected through normal means and may assign the account to its own in-house collections department. While previous collection attempts may have been crafted to preserve the relationship between debtor and creditor in hopes that they could continue to do business together, typically once the account goes to collections, the emphasis is on getting the creditor's money rather than maintaining goodwill with the customer. If the company does not have an in-house collection department or its collections efforts remain unsuccessful, the company may then assign or sell the account to a third-party collection agency.
After a collection account is sold or transferred to a third-party collection agency, the debtor must typically deal with the collection agency representatives rather than the original creditor. Collection agencies typically have more resources than other businesses for pursuing a collection account, including a staff entirely dedicated to debt collection. In some places, such as the United States, a severely delinquent debt may end up being reported twice on a credit report, once by the original creditor and once by the collection agency. The collection agency in some cases has the power to file a lawsuit against the debtor in order to collect the money owed. Many countries, however, restrict the activities of collection agencies in order to prevent the abuse of consumers and inaccurate reporting of debts.