Financial hardships are becoming far more common with every passing day due to the strain of the current economic climate and recent global catastrophes. Inflation is becoming a concern for many families across the United States, and people are having harder times paying off their debts. The worst part is when a credit card debt goes unfulfilled it can transfer to a debt collector. How exactly does this process work and where do the debt collection agencies come into play?
First, a debt collector buys off the debt from a larger financial institution, creditor, or furnisher, usually for pennies on the dollar. The agency buys the debt when the creditor, credit card company, or lender believes that the customer will not pay them back the money. For instance, a credit card that is not paid and accrues multiple late payments will eventually close and become a “charge-off.” A charge-off is the creditor’s declaration that the line of credit has closed and that they will not get the debt back from the customer through normal means. This can happen in multiple ways, such as the customer forgetting to pay off the debt or through identity theft with someone opening a line of credit in another person’s name and not paying the creditor back.
Once the lender or credit card company declares that the money lent out will not be returned through normal means, they then sell off the debt to a collection agency. Collection agencies buy the debt for very cheap so that the creditor or furnisher can recoup some of their losses. Then, the collection agency will go after the original debtor by insisting that they pay up the debt they owe. This can be done through different methods, but one of the most impactful scare tactics is through the debtor’s credit score.
The collection agency will place a collection on the debtor’s credit history so that all future lenders will see the collection and debt. This also lowers the debtor’s credit score, making it nearly impossible to open up a new line of credit or get a loan until the collection is paid off. The debt collector may also constantly harass the debtor by sending out multiple letters, calling the debtor constantly, and even may use threatening language (which is illegal).
According to the Fair Debt Collection Practices Act (FDCPA), the debt collector cannot overly harass the debtor nor can they use violent, threatening, or profane language to collect the debt. They also cannot threaten your livelihood (such as a job) or contact the authorities or police to collect the debt. The Federal Trade Commission (FTC) has sued various debt collection agencies for breaking these laws and practices.
Having a collection appear on your credit report can hurt you in the long run as it may prevent you from getting a good loan or a new credit card, so when you ignore the debt collector, it may still hurt your credit score and any loans you may want in the future. Even worse, debt collectors still have the legal right to sue you if the debt is high enough for them to go through litigation, which then has its own set of problems.
However, not all debt is fair and true. Some people often get contacted by debt collection agencies for debts they do not owe, those created by identity thieves.
If you feel as if you’re a victim of identity theft or want to remove a collection off of your credit report, you can always contact us at Fix Your Credit Consulting. Call us at (877) 212-2450 for a free credit consultation. We are industry experts familiar with the process of credit repair, building better credit, and dealing with identity theft.
If you have any questions, feel free to give us a call at 877-212-2450!
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