What Is a Debt Collector?

How Debt Collectors and Collection Agencies Affect You

A man talks to a debt collector.
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A debt collector is an individual or company that collects debts on past-due accounts. 

Debt collectors generate more fraud alerts to the Federal Trade Commission (FTC) than any other industry, according to the FTC, and with good reason. Few people have positive experiences dealing with debt collectors. As a consumer, it's important to know how debt collectors operate in case you ever have to deal with one.

What Is a Debt Collector?

A debt collector is a person or agency that obtains payment for delinquent debts sent to the collector by the lender that originally issued the debt. It's usually more cost-effective for companies to hire debt collectors than to continue to spend their own resources pursuing payment on delinquent accounts.

Debt collectors also include “debt buyers” that buy up past-due debts and try to collect on them.

Policies for sending accounts to a debt collector differ among creditors and lenders. Reviewing your credit card or loan agreement will often give you some information about your creditor's timeline. Many credit card accounts are sent to a collection agency after a few months of non-payment. Other types of businesses may send accounts to collections agencies after just a month or two or missed payments.

How Does Debt Collection Work?

When they're trying to get you to pay your debt, debt collectors will call you, send letters, and notify the credit bureaus of the collection account. Debt collectors are required to follow the Fair Debt Collection Practices Act (FDCPA) when they're collecting a debt from you. However, the thousands of complaints consumers make against debt collectors each year proves that they don't always follow the law.

The FDCPA doesn't usually apply to the original creditor, except when the creditor uses a different company name for its in-house debt collectors.

When and Where Can Collection Agencies Call?

Debt collectors can only call you between the hours of 8 a.m. and 9 p.m. your local time. They're allowed to call several times a day but are forbidden from calling you repeatedly to “annoy, abuse, or harass” you.

If they have your work phone number, debt collectors may even call you at your place of employment unless you let them know your employer doesn't approve of those calls. Some collectors have been known to show up at a person's home to collect a debt. Surprisingly, that's legal. Debt collectors might even call your personal number if you gave the number to your creditor to contact you.

The Consumer Financial Protection Bureau’s latest rules allow debt collectors to text or email consumers as long as clear opt-out instructions are included.

Who Can Collection Agencies Contact?

When a debt collector has a hard time reaching you, they may call your friends or neighbors to make sure they have the correct contact information for you. They're allowed to do this, but they're not allowed to reveal that they're collecting a debt and they usually can't contact the same person more than once.

What Notices Must Collection Agencies Provide?

Debt collectors will send payment notices to the address they have on file for you. In their first bill, they have to notify you that you have 30 days to request validation for the debt. Requesting validation forces the debt collector to provide proof that you owe the debt.

By law, the debt collector has five days from its first contact with you to notify you of the debt amount, who you owe the money to, and that you have 30 days to ask the collector to validate the debt.

The debt validation notice may also be given to you over the phone if a phone call is the first time the collector is contacting you. If they don't have the correct address, you may never receive a notice of the debt. And if the collector doesn't have your correct phone number or address, you may not find out about the account until you see it listed on your credit report.

How Do Debt Collectors Impact Your Credit?

When a creditor or lender sends an account to a debt collector, the collector can send your account information to a credit bureau. The creditor doesn't have to tell you that your account is being sent to collections. However, the debt collector does have to notify you that they are collecting the debt before they can take any action.

A collection account may appear on one or all three of your credit reports depending on which credit bureaus the debt collector has an arrangement with.

Accounts in Collection Can Do Lasting Damage to Your Credit Score

Having a debt collector reporting an account to the credit bureaus can hurt your credit score drop making it harder to get approved for credit cards and loans.

Accurate debt collection accounts can stay on your credit report for up to seven years from the date of your first missed payment. If your credit report contains a collection that doesn't belong to you, you can have it removed by disputing it with the credit bureau.

While paid collections may look better to some lenders when they're qualifying you for a loan, your credit score may not improve if you pay a debt collector. As time passes, the collection account will affect your credit less. Continuing to pay all your other bills on time will also help your credit score recover from a debt collection.