Credit collection is basically the procedure of chasing payments of outstanding debts owed to companies or individuals. The creditor will engage the services of a third party debt collecting agency called a collections agency or collection company to accomplish this task. These agencies or collection companies purchase your outstanding debts from you and then try to collect from the delinquent parties. There are different types of credit collection; here are some of them:

First, there’s credit repair. This is actually the only type of collection agency. With credit repair, an individual tries to get his or her credit report back on track by paying off or paying a reasonable amount for the debts. This is considered as the better way when compared to collections and bailiffs because credit repair has a wider scope and it does not involve the use of harsh measures. However, credit repair does not resolve the debt problem itself. It may just make it easier for you to obtain a credit report which may give your credit score a boost.

Second is fraudulent. The primary function of collection agencies is to create accounts in the names of debtors that are actually belonging to someone else. Collection agencies can even create a fictional identity called a “personality” to persuade consumers to pay up.

Third is the Accounts Receivable Removal. Under this credit collections policy, collection agencies are allowed to remove any unpaid accounts that are current. This eliminates cash flow problems and helps improve cash flow. Accounts Receivable Removal helps improve cash flow because the agency will have more access to invested monies once you’ve settled an account with them.

Fourth is the Fair Debt Collection Practices Act. This is another law that governs how agencies can collect their outstanding debts. The Fair Debt Collection Practices Act states that collection agencies cannot engage in abusive practices or lie to consumers about when they owe money. Furthermore, all agencies must provide consumers a copy of their credit report once a year for free and a detailed explanation of their collection strategies.

Fifth is the Debt Recovery Agency Guidelines. A debt recovery agency’s guidelines generally state how they intend to deal with a particular client. Agencies must also provide notice prior to taking any action that the original creditor was notified of their intention to pursue collection. However, if a creditor does not receive such notification, then they have the right to institute court proceedings against the debtor. According to the guidelines, if a debtor fails to respond to a Notice of Intent to Collection within a certain amount of time, then they are presumed to be in default of their agreement.

Sixth is the FDCPA. The Fair Debt Collection Practices Act empowers creditors to recover their funds from debtors only if they can prove that the debtor owes them the funds. Therefore, even if the original creditor did not receive written notice from the debtor that they were delinquent on a particular collection, they still have the right to pursue collection because the failure to respond to the Notice of Intent constitutes default. However, if a creditor receives such notification and proceeds to pursue a lawsuit against the debtor, then the rights of the debtor do not prevent the collection agency from seeking a court judgment in federal court.

If you are thinking about hiring a credit repair company to help you get your credit reports and do the work for you, make sure you take the time to review your reports with the credit bureau first. It may be tempting to attempt to delete negative information yourself, but doing so may affect your credit score for years to come. Also, by law, once you have disputed the negative information, it cannot be disputed again until it is removed via a disputing process. Therefore, if you find a mistake on your credit report, either way, by disputing the error, it should not stay on your credit report for more than six months.