If a lender has come to the conclusion that a borrower isn’t going to repay an account, they can close the account and sell it to a collections agency. They might have their own collections department work with the borrower first, but once the account is sold to an outside collections agency, the original account has to be closed. At that point, it’s out of the lender’s hands.

What this looks like on a credit report is that the original account will be shown as “charged off” and be closed. A new account will then appear with the collections agency as the owner. This account will show up as a negative item on your credit report.

Want to know more? Read here to find out what happens when a debt is sold to a collection agency and what you can do about it.