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Collection Accounts Are Becoming More Prevalent
Taylor McKenzie
Credit Trauma
Credit card companies are also experiencing major losses in our current
economic environment. In light of this, they are also tightening up their
guidelines and becoming pickier on who they send "Pre-Approved Offers of
Credit".
They are also watching your accounts like a hawk. Not only accounts you have
with them, but accounts you have with other credit card companies as well.
Your credit is being watched by all your credit card issuers more frequently
than ever before. If you happen to become past due on any credit card you
hold, then beware.you may be in danger of having your credit limit decreased
or even frozen.
How does this affect your credit?
" Decreasing your credit limit can cause your balance-to-limit ratio to go up.
In order to achieve the highest credit scores you can possibly have, you don'
t want your balance-to-limit ratio to exceed 30 maximum) on any
individual account, nor on the total amount of your revolving accounts
combined. If a creditor decreases your credit limits on one or more accounts,
this can have an immediate negative impact on your overall credit scores.
" Credit card issuers are also lowering credit limits to an amount below what
you currently owe.
If they do this, it can possibly put you into an immediate financial bind,
because the next statement you get from that creditor is going to ask for the
difference between your current balance on the account, and the new reduced
credit limit. This amount they're requiring you to pay can amount to
thousands of dollars, and if you're one of the ones affected, more than
likely you're not going to be able to come up with an extra few thousand
dollars to pay by the next due date.
What happens if you can't pay the difference?
If you cannot pay the "Amount Due" to the creditor after a certain period of
time (usually about 90 days), then your account will be transferred to the
Collections Department. Some creditors have internal collection departments,
while others outsource these accounts to 3rd party Collection Agencies.
Either way, the collector's primary task is to convince you to "pay-up".
Once a debt has been labeled a "collection account" on your credit, you're
going to see an immediate credit score drop. Collection accounts are about
as bad as it gets, short of bankruptcy, as far as your credit scores are
concerned.
How do collection agencies work?
Collection agencies work with lenders and creditors in a couple different
ways. In all cases, collection agencies purchase these bad debts for much
less than the amount owed, usually for pennies on the dollar. The first way
is for the agency to buy the bad debt so they own it outright. Another
option is for the creditor or lender to consign the account to the collection
agency. With this option, the creditor or lender agrees to pay the agency a
percentage of whatever amount their collectors are able to recover.
Percentages do vary, but some collection agencies can make as much as 50 of
the amount they're asking you to pay, then go up from there. Do not include
any interest that is being tacked on as part of your negotiation process.
The interest they're trying to charge you is just the icing on their cake.
3. You should be aware that when you are "settling for less than you owe" on
a debt with a collector, they are looking to receive the amount you
negotiated with them immediately, so make sure you have the money to do so.
Once you do come to an agreement, make sure you GET IT IN WRITING before you
make the payment.
4. At times, you may hear an unethical collector tell you whatever you want
to hear if they think it will help them get you to pay the debt. If they
offer to remove the collection from your credit report in exchange for
payment, make sure you require them to put this offer in writing first.
Collection accounts are never automatically removed just because they are
paid, so don't fall for that trick unless you see it in print on the
collection agencies letterhead referencing that exact account.
5. Debt collectors are paid bonuses on how much they can collect in a
calendar month. Keep this in mind during your negotiation process.
Sometimes calling at the end of the month can be helpful and negotiations may
be more to your advantage if that particular debt collector is trying to meet
a goal.
In Summary:
Life does have its challenges and can throw you a curve ball from time to
time, usually when you least expect it. In some cases like this, it may be
impossible to avoid a collection account. You need to know that you do have
many rights and there are many important things you need to be aware of.
For more information,
Visit: www.CollectionActCreditTrauma.com
Article submitted Tuesday, October 28, 2008
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