Debt collectors, also referred to as debt collection agencies, debt collection companies, and debt buyers, purchase past-due debts from creditors.
These accounts are usually at least 90 to 180 days past due, after which the original creditor charges off the debt and chalks it up to a loss. It’s at this point that a debt collection firm will purchase the debt, often for pennies on the dollar, and then attempt to collect from you directly.
For example, imagine you owed $5,000 on a credit card and haven’t made a payment in months, despite the bank repeatedly reaching out in an attempt to bring your account up to date. After six months of no success, the bank might reach out to a debt collector who purchases the balance for just $500.
This way, the original creditor recoups some of their money, while the collection firm stands to make a healthy profit if they can collect the full amount from you.
Despite this relatively straightforward process, finding a debt that has gone to collections can be tricky. In this article, we’ll outline how to learn more, what you should do, and how you can repair your credit following a collection.
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How Can I Learn if I Have Debt in Collections?
It’s not always easy to find a collections debt for several different potential reasons.
For example, the debt might be brand new and hasn’t had an opportunity to hit your credit reports yet. On the other hand, the debt might be more than seven years old, after which it will no longer appear on your credit report.
What’s more, the firm may have reported the collections to some credit bureaus but not others. The good news is that the tips below can help you learn if you have a debt in collections.
Check Your Credit Report
Sometimes, firms might send your negative collections mark to only one or two of the three reporting agencies (TransUnion, Equifax, and Experian), which means it might show up on some credit reports but not others. This is why you must check your reports from all three bureaus to see if any collections notices appear.
If you find discrepancies like these or believe that you don’t owe the debt, you can send a debt dispute letter to any collections companies that appear on your credit reports. Then, the firms have 30 days to validate the debt and provide the original creditor’s name and address.
Go Through Your Mail
Regardless of whether it’s new or old, your mail can shed light on crucial details like which debt collectors you owe, how much you owe, and how long the balance has been in collections. Therefore, if you haven’t combed through your mail in a while, we’d recommend doing so at your earliest convenience.
Keep in mind that this also applies to email. In many instances, a collection firm’s emails will end up in your spam or bulk folders, so these are always good places to scour as well.
Listen to Your Voicemails
In addition to letters and emails, collections firms will also attempt to contact you via phone, including text messages, if they have your number on file. Therefore, don’t forget to listen to your voicemails to determine which debt collector you owe.
It’s important to emphasize that collections companies cannot call you before 8 a.m., after 9 p.m., or at your place of work unless you previously agreed to it.
Contact the Original Lender
A surefire way to figure out which agencies are collecting on your debt is to talk to the original lender. Depending on the length of time it’s existed, your debt may have been sold to multiple collections agencies. And at this point, it can be challenging to know which company originally charged off your balance and started the collections process.
The good and bad news is that each time a company charges off your debt or sells it to a collections firm, a new mark appears on your credit report. Thus, ordering your three reports can help you trace the debt back to the original creditor, at which point you can contact them and verify that the information is correct.
Keep in mind, though, that the older your debt, the less likely it is that your original creditor will retain details of what you owed and to whom they sold your charged-off debt.
What Should I Do if I Have Debt in Collections?
Once you’ve learned about and verified the debts you owe, the next step is to work with debt collectors to repay any remaining balances or dispute the debt. Let’s take a closer look at each of these options.
Pay the Debt in Full
The fastest and easiest way to get a collections company off your back is to repay the balance in full.
Whether you agree to a single lump-sum payment or installments, it’s essential that you first verify the debt is yours and then calculate how much you can afford to pay. After all, you don’t want to end up falling behind again, potentially leading to another charge-off.
Dispute the Debt
If a collections agency continues contacting you about a debt you don’t owe, you’ll need to send them a formal dispute letter asking them to validate the debt. In your letter, include your name and address, the amount owed, the name of the creditor, and which debts you’re disputing and why.
You’ll also want to send copies of the dispute letter to each of the three reporting bureaus, including Equifax, Experian, and TransUnion, to keep them in the loop.
Once they receive your letter, the collections firm has 30 days to demonstrate that you owe the debt and back up their claim with documents and other information.
Keep up With Credit Reports and Debts in the Future
To avoid putting yourself in a similar situation in the future, it’s wise to repay your debts on time, so they don’t eventually go to collections. You’ll also want to stay up-to-date on each of your three credit reports, which can help you catch collection notices early, whether they’re legitimate or not.
Rebuilding Your Credit
There are multiple methods you can use to rebuild your credit and increase your score after a collection, including:
- Pay your bills on time — Most creditors don’t report late payments until they’re at least 30 days past due. Still, to maximize your score and avoid penalties, it’s always a good idea to pay your bills on time.
- Maintain low credit utilization — If all your lines of credit are maxed out, meaning your credit utilization ratio is too high, it can negatively impact your score. Therefore, it’s wise to keep your balances low.
- Apply for a secured credit card — A secured credit card is backed by a cash deposit, usually up to your credit limit. This way, if you don’t pay promptly, the creditor has enough money on hand to cover the balance.
- Monitor how often you apply for new credit — Soft credit inquiries, such as initial checks when applying for a loan, don’t impact your score. However, if you decide to proceed, the creditor will process a hard inquiry, reducing your score. Therefore, keep new credit applications to a minimum.
- Enlist the assistance of a credit repair company — Credit repair companies help you identify and dispute inaccurate marks on your credit reports. Many firms also offer credit counseling services to help boost your financial literacy and habits.
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