Who Are Debt Collection Companies and Why Are They Hurting Your Credit Score
On the occasion that a debt collector calls you, or you’re worried about debt collection agencies coming after your credit report, there might be several questions running around your mind. It does not help that you’re also thinking about how to pay past-due accounts under your name. Receiving harassing phone calls may just aggravate your present situation.
But it is better to know what you’re up against when dealing with dishonest debt collectors. To better understand how the industry operates, this article will introduce you to the business of collecting debts. Being in an unfortunate situation with a debt collection company, you must know your way around the system. Read to know more:
Debt Collection: An Overview
The debt collection process happens when a collection company attempts to collect outstanding debts from consumers like you. A debt collector will start contacting you if you fail to pay your loan or credit card bills way past the due date.
This circumstance can also happen if you’re an authorized user of someone else’s credit card or you’ve cosigned a loan. You may find out more about debt collection agencies on Crediful. For now, it is ideal to know that debt collectors will tirelessly pursue you about payments for any of the following:
- Student loan
- Personal loan
- Car/Auto loan
- Credit card
- Utility and phone bills
Debt collectors are third-party agencies that make a profit by working on behalf of the original creditors. The company receives a percentage of the debt collected from the company where the original creditor belongs. There are also instances where debt collection companies purchase an original debt in exchange for pennies on the dollar.
How Do Debt Collection Companies Operate?
The process of debt collection varies from one company to another. Some companies cater to a specific type of debt, such as student loan debt or healthcare bills. Others may only focus on debts that are a few years old. And some companies avoid debt that already went past its statute of limitations.
If you have outstanding bills, the original creditor typically alerts you first through written notice and phone calls. They will attempt to communicate with you about the account current. Once the original creditor is unsuccessful in reaching out to you, this is where the transition from the lender to the debt collection company takes place.
All the information that the original creditor has on you will be transferred to the debt collector’s possession. Debt collectors will then use this information, including your name, home address, phone number, and even your family’s contact information, to come after you.
They may even utilize your personal banking information, such as savings and investment accounts, to see if you have enough resources to pay your debts. Several states have even allowed wage garnishment when collecting old debts from consumers.
How to Deal With Debt Collectors?
Having a collection account in your credit report may cause significant damage to your credit score. It may stay in your credit report for as long as seven years, giving your name a lousy reputation to future lenders. Dealing with debt collectors as soon as possible is the only way to solve this problem. Here is a step-by-step guide to assist you throughout the process.
1. Validate the debt
The FDCPA requires all debt collection companies to provide consumers like you a debt validation letter. You must not pay any amount to them unless you confirm that the debt is legitimately yours. This process is a crucial step that everyone should not skip.
A debt validation letter outlines the exact amount of debt, classification of debt owed, and all the necessary information about the original creditor. If you notice any discrepancies, you have a full 30 days to dispute the claims made against you
2. Familiarize yourself with the different payment options
You have two options when paying outstanding bills. You may fulfill it by making a full payment or enrolling in a repayment plan. It is best to consider and examine your financial status to see which option will work best for you.
See how much money you are willing to put down. If it isn’t enough to pay the debt in full, you may negotiate with the debt collection company for a repayment plan that costs less than the money you owe. You can also seek the help of a credit counselor or a debt management planner to guide you in your financial undertakings.
3. Start making payments
Before paying anything to debt collectors, make sure to ask the company for a written agreement. Review the information provided in the letter once it arrives at your doorstep. Keep in mind that you are negotiating with tricky companies, so check every document provided by the debt collection company before you can start making any payment.
Though debt collectors operate suspiciously, they are still considered legitimate by the Better Business Bureau. And clearing off negative items reflected in your credit report should always be a top priority. Dealing with debt collection companies is indeed a difficult task, so remember to keep your guards up when coming across their way.