Let's begin with collection agencies. What is a collection agency? Collection agencies are 3rd party companies that have purchased debts for pennies on the dollars and are used by lenders or creditors to recover funds that are past due. Collections and charge offs can both affect your credit score significantly. People tend to confuse collections with charge-offs quite often so we're gonna discuss the differences. Charge offs occurs when a bank writes delinquent debts off its books. For example, Let’s say you purchase your dream car for 50K. In 8 months, you hit rock bottom and cannot afford to make the payments on that vehicle so you start to fall behind on payments. You become delinquent and after 120 days have passed you notice your car is no longer in your driveway because it has been repossessed. You still owe 40K on that vehicle and the bank sends it to an auction to sell for 30K. The bank writes off the 10K gap on there taxes and now there is a charged off account on your credit report. A charged off account or collections account can drop your credit score anywhere from 60 to 100 points.

Key Note

Theoretically a creditor can send your account to a collections agency after your bill is 31 days past due. It doesn’t matter if it is one dollar or one thousand dollars past due. Always keep that in mind and monitor your credit report monthly with NC Credit Solution credit monitoring service. At any time, there could be an error on your credit report that you might not recognize until it is too late. 79% of credit reports nationwide HAS errors on them. This means that 4 out of 5 people in the U.S has errors on there credit report that could be affecting their score. The statute of limitation for debt collection in North Carolina is 3 years for written contracts. What does this mean for you if you owe a debt in North Carolina? Let’s take look at the same example of the purchase of your dream car after it is repossessed. Let’s say the repossession occurred in January of 2016. It’s June of 2020 today. This means that the collection agency cannot sue you for the money you owe on that vehicle because it is outside the statute of limitation. However, if it was June of 2017, then you can possibly be sued for that debt.