A collection agency is a third-party company hired to follow up on debts by various account holders. A collection agency may also purchase debts which have remained uncollected for a longer time from the creditor for a minimal amount and then recover these for profit. They often earn by commission or through a pre-arranged fee.
They also provide reports to the credit bureau, where a database of outstanding accounts is logged and filed, to also help other agencies and financial institutions. The delinquent account appears on the credit bureau's record for a period of seven years.
How do collection agencies work?
They manage by contacting the debtor either by telephone calls or business letters.
LETTERS
Most collection agencies have a standard computer generated letter containing a simple reminder of the delinquent account. These letters are impersonal, yet not evasive, as they are sent to a lot of account holders and are often sent in the most discreet way possible. Sometimes the envelope does not even contain the company's identity, as debts may often prove embarrassing for some people. How the letter is phrased and how it is carried out is very important as this will affect the kind of response sought from the debtor. Sometimes a second letter or a follow up letter is also necessary.
PHONE CALLS
When letters fail to attract the attention of the debtor, collectors then make necessary phone calls. There are groups of people hired by agencies to handle different accounts and they work all day by calling each and every person in that account. As always, tact and discreetness is demanded from these collector agents. There usually is an SOP for all types of phone calls. When a collector agent makes progress by reaching someone who isn't the debtor, the agent must not disclose the nature of the call, except to leave a phone number and a request for return call. When a collector agent successfully contacts the debtor, agents are required to properly introduce themselves and then state the nature of their call. The collector must be able to make arrangements with the debtor, and if a commitment of payment is not reached, any information he or she can extract from the debtor will also be useful in evaluating what the next action will be.
What can collection agencies not do?
- They do not have legal rights to seize assets, without a filed lawsuit and a verdict. Lawsuits, by the way, are only seen as last resort and if the debtor remains firm on his stand to deny payment. - They do not have the legal right to disclose any debt in public. They are only allowed to disclose these in official credit agencies. - They do not have the power or the legal backing to have someone be fired from work. - They are prohibited from engaging in any verbal or physical threats.
Collection agencies are regulated by a trade commission and by-laws may depend from state to state.
Next to bankruptcy, having an account in collections is the worst entry you can have on your credit report. It will lower your score, and make it difficult- if not impossible- to obtain new credit. Creditors realize that if you have an account in collections that it went unpaid for a long period of time, and it makes them fear that if they lent you money they would not receive payments on time, either. Once you have an account in collections, your goal is to improve your credit and get the collections accounts deleted, or at the very least, updated on the credit report to say ?Paid as agreed?, ?Current?, or ?Settled?.
The damage is done the moment the account is reported as being in collections. Before you pay off that collection account, you want to negotiate with the debt collector to have the credit report updated to one of the more favorable notations, as described above. You do not want to deal with the nightmare that many people face because they didn't negotiate with the creditor and get the intention in writing for the update of your credit report- some people have paid accounts off that are in collections and their credit report is not updated. For at least seven years after the account is paid off; the individuals end up having problems getting new credit because the account still appears in negative status on the credit report.
The Best Scenario for You
The best you can hope for in terms of improving your credit is to have the collector delete the account from your credit report entirely. Send a ?pay for delete? letter to the collector, and offer a settlement payment that you will pay them in exchange for the deletion of the account from your credit report. Get the collectors response in writing before you make a payment, to be sure you have proof of the arrangement in the event they don't follow through with their end of the bargain.
If you prefer to call the debt collector, you chance being recorded saying something that can be used against you in a judgement case. You'll want to get the agreement from the collector in writing anyway, so it's a good idea to do this in writing anyway.
Debt collectors do not have to remove accurate entries from your credit report, even if you offer a settlement, so not all debt collectors will agree to this scenario.
Second Best Scenario for You
There are a number of collectors who will hold out in hopes of getting the payment in full and will refuse to delete the account from your credit report in exchange for a settlement (less than amount owed) payment. If this is your situation, you'll have to offer to pay the full amount to get the collector to delete the account from your credit history report.
Not as Good, But Acceptable!
There are some collectors who simply refuse to remove an entry from your credit report, even when you've made payment. You would then want to get the collector to agree to update the notation to ?Paid in Full?; whether you make a settlement payment or the full amount.
Unfortunately, a number of collectors won't report it as ?paid in full? if you settle. If you get the debt collector to agree to a settlement payment, but not ?paid in full?, it would still be acceptable and better than your current situation to have the account reflect ?Paid- Settled? on your credit report. It will not result in an instant, huge boost in your credit score, but it is certainly better than the situation you're in now (having the account in collections) and is the best alternative if you can't get it deleted or marked ?Paid in full? for making a partial payment. (If you have the money to pay the account in full, do it because the notation on your credit report for an account paid in full is much better for you over the long term!)
Both Tristan Andrews & Debbie Dragon are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Tristan Andrews has sinced written about articles on various topics from Pets, Education and Collection Agencies. Tristan Andrews writes useful articles about debt collection agencies. Find out how using a can expand your financial horizons at. Tristan Andrews's top article generates over 673000 views. to your Favourites.
Debbie Dragon has sinced written about articles on various topics from Finances, Credit Cards and Kitchen Home Improvement. For additional help visit our at DestroyDebt.com.. Debbie Dragon's top article generates over 165000 views. to your Favourites.