What is a debt collector and how does it work

what is debt collector

Are you in debt? Yep, so are we. And we’re not alone. There are 120 million households in America dealing with over 14 trillion dollars in unpaid debt.1 With those kinds of numbers, it’s no wonder that many of us have to deal with a third-party debt collector. But what exactly is a debt collector, and how can you work with them?

In this blog, we’ll talk about the debt collection process and share some tips on how you can stop fearing those daily phone calls and nerve-racking letters from debt collectors.

Are you one of the many Americans feeling the frustration of the debt crisis? Then read on!

What Is a Debt Collector?

Debt collectors work with people to pay or settle their past-due debts and delinquent accounts. Most debt collectors work for debt collection agencies but can also be hired independently as in-house debt collectors for any money owed. There are also law firms that collect debts. A creditor pays a debt collector a portion of the money collected—typically 25%-50%.

Another type of debt collector is the debt buyer. Debt buyers typically work with creditors that hold revolving debt (like credit card debt) and other pieces of old debt and purchase the delinquent accounts from the original creditor. Debt buyers then attempt to collect the debts owed. If your debt is sold, you may still have to pay it

How Do Debt Collectors Work?

Debt collectors or debt collection agencies have varied business practices. Some debt collection agencies are only looking to collect on significant debts. Other collection agencies only work with specific types of accounts, like credit card debt or medical debt. And other companies won’t work with debt that is past the statute of limitations for collection—which varies from state to state. It will be helpful to research the statute of limitations where you live.

Debt collection starts with the creditor or lender you owe. When your account is past due, your creditor will make attempts to contact you and get paid. 

If you don’t respond, your creditor will suspend your account and transfer it to a debt collection agency. When the agency’s debt collectors start making attempts to contact you, they use their resources to find every possible way to contact you. 

A debt collector will also call relatives, friends, and roommates to reach you and use a private investigator to look into your life. When a law firm collects a debt, they file lawsuits against customers on the creditor’s behalf. Depending on the size and age of the debt, a debt collector will also dig into your bank account or accounts to determine if you are capable of repaying the debt. Their discovery could lead to filing legal action to garnish your wages.

Debt Collection and Your Credit Report

In addition to collecting debts, a debt collector will also take action that will negatively impact your credit report.

What Is a Credit Report?

Your credit report is a record of the financial activity between you and all of your creditors. Potential creditors will reference your credit report when considering loaning money to you—a process known as a credit check.

Your credit report contains information about how you use credit and how timely you repay your debts. Credit reports come from data collection agencies called credit bureaus. In addition to reporting your history and past-due debts, a credit bureau/credit reporting company gives your credit report a credit score. 

What Is a Credit Score?

A credit score is a three-digit number that ranges from 300-850, broken down into these categories:

  • 781–850 Excellent Credit
  • 661–780 Good Credit 
  • 601–660 Fair Credit 
  • 500–600 Bad Credit
  • 300–499 Very Bad Credit

The Credit Bureaus

The three major credit bureaus (Experian, Equifax, and TransUnion) produce separate credit reports, so you can have several credit scores that vary slightly. But, when a debt collector reports a delinquent account, it will have the most significant impact on your credit report, regardless of the bureau that receives the information.

Your credit report and credit score are essential to determine what financing options are available to you. People with good credit scores have access to loans and lines of credit that have low-interest rates and loan terms that make repayment manageable. People with bad credit are considered high-risk customers for traditional loans but may qualify for options like installment loans such as personal loan options for bad credit or other bad credit loans.

A collection that correctly reports your account information will stay on your report for up to seven years after it was first reported as delinquent.

However, there are times when credit reports contain errors. Credit report errors include anything from an on-time payment reported as late to sharing a name with a person who actually has a delinquent account. If you find that a debt collector has made an error on your report, you can file a dispute with the credit bureau. If you can prove that the debt collector is incorrect, you can update or remove the collection. This action should help your credit score rise.

What To Do When a Debt Collector Contacts You

When a debt collector contacts you, the call may surprise you. A debt collector calling may not be something that happens often, so it’s natural to feel caught off guard. Regardless, it’s crucial to deal with the situation calmly. A quick or emotional reaction can lead to making promises and agreements that you literally can’t afford to keep. To make a good deal, use these tips to deal with the collection agency:

Make Time to Talk

After you identify yourself, the debt collector will immediately launch into the specifics of your debt. If you can’t talk to them at the moment, give them a time that’s best for you and tell them to call back then.

Take Notes With Debt Collector Contact

If you have time to talk, that’s great; the sooner you can start dealing with the debt, the better! 

Get a pen and paper, or open up your computer and take notes during the call. Record the date and time of the call, the original creditor’s name, and the amount of money they claim you owe. Include any notes about any action threatened against you. And don’t forget to get the name of the person you’re talking to and the address of the company they work for, so you can communicate with written letters when needed.

Request Documents for Delinquent Debt

Tell the debt collector that you will need to receive written documentation of the debt. Make sure that they have your current address. If the debt collector asks why you need the papers, simply state that you don’t think you owe anything.

Admit Nothing About Debt Owed!

When your debt collector says you owe something, that doesn’t mean it’s true. Dubious debt collectors are known to make up debt, and debt buyers can also collect on a past debt that has reached the statute of limitations (one reason why it’s important to know your state’s statute of limitations). Before you make any arrangements, send the collection agency a debt validation letter requesting proof of the debt. And if you think you’re a victim of a scam, seek legal advice.

Debt Collection and the Law

If you owe a debt, your creditor has a right to work with a collection agency and make an effort to collect payment from you. However, the federal government has created laws and agencies to regulate debt collectors and protect your rights as a consumer.

Fair Debt Collection Practices Act

Debt collectors working for agencies must follow the regulations outlined in the Fair Debt Collection Practices Act. It is a law that details how third-party debt collectors attempt to collect debts for other companies and individuals. The law sets standards for how many attempts to contact you can be made daily and mandates that debt collectors contact you through your preferred method of communication.

It’s important to note that this law only applies to debt collectors working for third-party debt collection agencies, not the company or person that you owe. For example, according to the law, if you owe money to your cable company, the cable company calling to settle the balance is not acting as a debt collector.

Consumer Financial Protection Bureau

If you need help dealing with a debt collector, get to know the Consumer Financial Protection Bureau (CFPB).

Created in 2010, the CFPB is an agency of the federal government that makes and enforces rules on how finance companies market financial products and services to American consumers. Additionally, the CFPB provides education and resources to deal with abusive financial practices—like harassment from a debt collector. You can also file complaints about a debt collector with the CFPB. The CFPB will investigate the debt collector, the debt collection agency, and their practices.

In Conclusion With CreditNinja

At CreditNinja, we know that debt collection can take an emotional toll. The tactics that a dubious debt collector uses are to agitate or even frighten you into some action.

When letters and phone calls come with threats of action, you should be the first to take action. Reach out to your creditors and offer to work with them using the tips we discussed here. Learn the difference between debt consolidation and debt settlement. But whatever you do, don’t hide. The sooner you face your debt, the sooner you can tackle it and get on with working towards your financial goals.


  1. The US Consumer Debt Crisis |
  2. What is a debt collector, and why are they contacting me? |
  3. FDCPA Definition | Investopedia

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