Creditors and collection agencies
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Creditors and collection agencies

Creditors are lenders who extend a line of credit ...

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Put simply, creditors are the people or companies that you owe. Creditors are lenders who extend a line of credit to you through a loan, a credit card, or goods; and you are expected to pay them back the value of what they've given you based on terms to which you've both agreed.

Terms include any extra money you pay for the privilege of the extending the loan (interest), how quickly you are supposed to pay the loan back, and what happens when you don't pay the creditor back according to the terms.

When you don't abide by the terms you agreed to, they will often report this to credit bureaus. If you don't pay your creditors back at all, your account will usually be turned over to a collection agency.

A collection agency can be part of the original creditor's company, which is called a first-party collection agency. This is usually just a department within the bank that specializes in collecting outstanding debt.

A third-party collection agency is more common. They are a separate, outside company. Outside collection agencies will either contract with the original creditor to get a percentage of whatever they collect from you or they will buy your debt from the original creditor for much less than what you owe. Anything they collect from you above that price is profit for the collection company.

Because collection agencies usually only get paid if they can get you to pay your debt, they tend to be more aggressive than the original creditor. For this reason, they have a reputation as being bullies toward the debtors. If you still don't pay your debt, the collection agency may file a lawsuit against you with collection attorneys.

From: Understanding credit and credit cards (don)
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