What Is Debt Collection?

Debt collection is the process of collecting an unpaid debt from a borrower, typically after the borrower has missed three or more monthly payments. This task is usually handled by a collection agency or a third-party debt collector. Common types of debts that may go into collections include credit card bills, rent, phone bills, car loans, and medical bills.

How Does Debt Collection Work?

When a debt collector contacts you for the first time, they must provide a validation notice, either electronically or in writing, detailing the debt you owe. This notice includes the amount owed, the original creditor’s name, and how to dispute the debt if you believe it is not yours.

If you dispute the debt within 30 days, the collector must provide verification of the debt before continuing collection efforts. Debt collectors may contact you through various means, including phone calls, emails, and even social media, but they must adhere to specific regulations to protect your rights.

What Is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act (FDCPA) governs debt collection practices and prohibits debt collectors from using deceptive, abusive, or unfair methods to collect a debt. If a debt collector violates these rules, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or take legal action.

Under the FDCPA, debt collectors cannot:

• Threaten violence or use criminal means to harm you, your property, or reputation
• Use profane or obscene language
• Publish your name, except to a consumer reporting agency
• Advertise a debt for sale to coerce payment
• Harass you with repeated calls at any time, day or night
• Call you without properly identifying themselves
• Use false, deceptive, or misleading representations
• Use unfair or unconscionable means to collect a debt

How Does Debt in Collections Affect Your Credit?

Once a debt collector sends you a validation notice, they can report the collection account to the credit reporting agencies. This account will appear separately from the original debt on your credit report and can significantly impact your credit score. Collection accounts remain on your credit report for up to seven years from the date the original account first became delinquent.

Paying off your collection account can end the debt collector’s actions and may improve your credit score, especially with newer credit scoring models that ignore paid collection accounts. Additionally, potential lenders prefer to see a paid-off collection account when reviewing your credit report.

How to Deal With Debt in Collections

Understanding your rights and taking proactive steps can help you manage debt in collections more effectively:

• Check your credit report: If the collection account is not listed, you might be able to pay the collection agency before it appears on your report.
• Confirm you owe the debt: Ensure the information provided by the debt collector is accurate. If you dispute the debt, request verification in writing within 30 days.
• Negotiate: If the debt is yours, see if you can arrange monthly payments or negotiate a lower payment amount. However, paying the debt in full is best for your credit.
• Pay off the account: Paying off the collection account can improve your credit score and stop the debt collector’s actions.
• Request an end to communication: Send a cease and desist letter to the debt collector once the debt is paid, asking them to stop contacting you.
• Consider legal action: If you believe your rights under the FDCPA have been violated, consult an attorney.
• File a complaint: Report any violations to the Federal Trade Commission (FTC) or the CFPB.

The Bottom Line

Debt collection is never a pleasant experience, but taking responsibility for your debt is the first step towards financial recovery. Regularly checking your credit report and FICO® Score can help you stay informed about your financial status and the impact of any collection accounts.

At O1ne Mortgage, we understand the challenges of dealing with debt and are here to support you. For any mortgage service needs, call us at 213-732-3074. Our team of experts is ready to assist you in navigating your financial journey.