Simply put:

The simple answer to this question is easy: Yes. Debt collection agency reports can and do appear on your credit report. This does not necessarily mean that they will, however. Recovery agencies will have to request a note put into your file that a delinquent debt is in collections. Creditors themselves also have the option of sending notes to credit report agencies of your collection status. Of course, regardless of whether or not your creditor or a debt collector agency places an alert in your file, the delinquent debt will appear—only whether or not it is in debt collection is variable.

Effect

Having a debt collection report on your credit report is often listed as one of the worst things you can have on a credit report. Many groups rank it higher than a bankruptcy. To a credit rating agency—and to lenders or others who may tender credit—a debt collection in your credit report indicates that you lack the responsibility to admit the magnitude of your debt is out of hand, or take the appropriate actions to rectify the situation

Why

The reason debt recovery agency reports on credit files are so bad is because it reflects a particularly poor record on many of the most important factors in credit rating. The most dominant of these is your payment history. Although this factor is not nearly as important as many people think, it is still the largest single factor in your rating.. Payment history composes about one-third of your rating. Having a debt recovery agency report on your record indicates that not only were you late in payments, but that you were often enough and severely enough for the creditor to turn to an outside agency for collection. Second, it reflects the magnitude of your debt. Creditors are extremely unlikely to bother going to a collection agency for small or minor debts. Thus, having a debt in a collection agency indicates that you have a debt of significant size for an extended period. Lastly, having a delinquent debt indicates that you obviously lack either the capacity or the responsibility to pay debts sufficiently and within a reasonable time frame. This generally indicates to potential creditors that you probably don't possess the responsibility to pay future debts, either.