Collection agencies how do they work

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If a creditor has sent your debt to collections, they expect to receive only a portion of any money collected. For them, this is preferable to receiving nothing at all—or continuing the process of trying to collect your debt themselves. Debt collectors only make money when they collect on your debt. They are single-minded, persistent and highly motivated. If a collection agency contacts you, don't assume you can ignore them and hope they go away.

Instead, manage your relationship with them proactively and remember that you have specific rights when dealing with them. Here's a sampling of regulations with which debt collectors must comply:. Additionally, the debt an agency is pursuing must be valid. You have the right to request, in writing, a debt validation letter showing how much you owe and to whom.

The agency must provide this information within five days of initially contacting you. With this information, you should be able to identify what the debt is, determine whether or not it's been previously paid, is the correct amount, and whether it is recent enough to fall within your state's statute of limitations more on this later. You are also entitled to know the collection agency's name and mailing address so you can check with your creditor to confirm they are legitimate.

Having an account in collections has a significant negative impact on your credit, and it will stay on your report for seven years. But it's likely your credit scores began to suffer before the collection agency ever got involved. Late and missed payments both factor into determining your credit score, and by the time your account goes into collections, they could have already been reported to the three major credit bureaus Experian, TransUnion and Equifax.

Check your credit report and score as soon as you are contacted by a collection agency. You'll be able to see whether the information has been reported and what impact it may be having. If your original creditor does not routinely report information to credit bureaus—for instance, if you owe your doctor's office or landlord—they may not have reported that your account is in collections yet. In this case, you may have an opportunity to resolve the debt before a report is made. However, if you owe money to a credit card company, bank or other lender, late payments and collections have probably already been noted.

Even if the debt collector doesn't provide this notice, you can still dispute the debt, ask for debt validation, and request the original creditor's name. It's a good idea to always validate the debt if a debt collector contacts you. The amount of the debt could be inaccurate, or the debt might be against someone else. Generally, once you dispute a debt or request the original creditor's identity, the debt collector has to cease collection efforts until it verifies the debt or identifies the creditor, and sends this information to you.

If you have some cash on hand, you may consider negotiating with the collector. You might offer a lump-sum settlement or try to work out a payment plan. Exactly how much leverage you'll get by threatening the collector with an FDCPA lawsuit depends on the strength of your case. If you have strong evidence—say you have records of abusive phone calls, harassing texts, and offensive voicemails—you'll probably have considerable clout in debt settlement negotiations.

Again, don't forget to consider all options before you start negotiating with collectors, like filing for bankruptcy. If you're judgment proof , you might consider ignoring the collector, though this tactic isn't usually the best option.

Another alternative is waiting until the statute of limitations expires. The statute of limitations is the number of years that the collector has to sue you for a money judgment.

Once that period passes, the collector can't get a judgment against you. Keep in mind that you can stop calls and other communications by telling the collector in writing to stop contacting you. Any debt starts out as a current account or perhaps "too new to rate". As you fall behind on the payments, the debt is typically reported to the credit reporting bureaus as 30 days late, 60 days late, 90 days late, and the like.

Each missed payment hurts your credit. The creditor will probably transfer or sell the debt to a debt collector or debt buyer three to six months after you default. When the debt is sold or transferred, a new collection account is added to your credit history. So, after your debt has been transferred or sold, it will probably show up two times in your credit history.

If the debt is sold again, another account is added to your credit history. The previous accounts are no longer shown as active, but they'll still appear as part of the account's history. All of the accounts—the original account and any subsequent collection accounts—will ordinarily be deleted at the same time , which is seven years from the original delinquency.

If you negotiate a settlement, you may ask to have any negative information about the debt removed from your credit files. If the creditor or debt collector agrees to delete the tradeline, all information will be removed. So, if you had several years of positive payment history before you defaulted on the account, that positive information will also be deleted.

The collection agency becomes the legal owner of the debt and makes their profit by collecting the whole amount from you. The original creditor still owns the debt, but they use a collection agency to contact you. You can usually tell which of these applies by checking where letters from the debt collection agency ask you to send payment. Collection agencies will use letters and phone calls to contact you. They may contact by other means too, such as text or email. Letters or phone calls from collection agencies can be worrying.

They could take court action if you don't pay. Some may ask you to pay back the debt in full or in large instalments. You should offer to pay them only what you can realistically afford. We can help you put together a budget and work out how much you can afford to pay.

A collection agency can send someone to your house. Find out more about the differences between bailiffs and debt collectors. If you do make any payments to a collection agent who calls at your home, make sure you see their ID first, and get a receipt for the payments. Vulnerability can range from dealing with the loss of a loved one to chronic mental or physical health problems.

There are other vulnerabilities you may be dealing with, such as feeling anxious about speaking over the phone, or living with a learning difficulty. It's important to let your creditors know if you're in a vulnerable situation.