If the debt goes unpaid, you need to pass it to a collection agency that will contact you in various ways. The aim here is to get you to pay up. Unfortunately, the credit score will take a significant hit when you default, limiting your access to new credit. Here, we’ll focus on a closer look at what you can expect when a bill lands in the collection, how to dispute collections from the money you don’t owe, and how to work with an agency to stay debt-free.
Credit card debt recovery agency
A collection agency is a company that collects past due funds from borrowers on behalf of creditors. However, some creditors also include the internal collections department. But most debt collection agency will send the account along to an outside agency if the bill is in default or considerably overdue.
When the bill lands at a credit card debt recovery agency, you’ll no longer hear from a creditor or be able to pay them. Instead, the agency will work to recover unpaid funds in exchange for a portion of the payment.
The bills won’t suddenly end up in collections. Moreover, you’ll come across creditors multiple times over three or four months before your account gets to a collection firm. Meanwhile, it’s equally possible for a debt to be sent to collection without notice as creditors aren’t required to inform debtors.
What happens if a debt goes into collections?
The debt gets forwarded to a debt collection agency after the creditor fails to get you to make payments. Here, the agency steps up efforts to contact the debtor. They’ll receive calls and letters, sometimes persistently.
Letting a debt go into the collection significantly affects the credit score. But, the drop also depends on how much other negative information is in the credit history. With an excellent credit score, you might see the score drop to as much as 150 points.
Similar to most negative credit information, collection accounts stay on the credit report for up to seven years. Paying off a debt in collections won’t necessarily enhance the score. Some lenders still stick to older scoring models when assessing eligibility for credit.
Rights during the collection process
Consumers have certain rights when it comes to debt collection. As per federal law, collectors are required to send a validation letter within five days of contacting you. The letter should provide details on the amount owed, the name of the creditor, and how to dispute the debt. If you receive a letter like this, you have 30 days to challenge it in writing.
The federal law gives you the right to request in writing that a collector must stop contacting you.
The Fair Debt Collection Practices Act
The FDCA protects consumers from unfair and deceptive practices. Basically, it covers most debt, except business debts, and sets forth rules for how and when a debt collector can contact you.
If the debt collector violates collection laws, its best to report their behavior to the following
- Federal Trade Commission
- Consumer Financial Protection Bureau (CFPB)
- State Attorney General
The FDCPA also gives you the right to sue a debt collector in court.
Paying a collection agency
- Pay in full
The most straightforward way to handle debt is to pay it. Here, you don’t need to negotiate. Meanwhile, this improves the credit faster.
- Go for negotiation
The credit card debt recovery agency will offer a payment plan that lets you pay off your balance. When this option might work for you, you must get an agreement in writing and ensure the account gets reported as “paid in full” once your last payment is in.
Final Takeaway
A debt collection agency must never ignore debt. Likewise, with a court order, a collection agency may be able to garnish wages.
