In the financial market, there are borrowers and lenders. Borrowers use lenders' funds, and the lenders make money by charging interest on the money they allow borrowers to use. But how do lenders know that once they make a loan, they will get their money back? They use a measurement known as credit. Credit measures the level of confidence lenders have in borrowers. The higher the credit a borrower has, the more confidence a lender has in this borrower and the more money they are willing to lend to him or her.

Credit and Collection web directory
Credit and Collection

What determines a borrower's credit? A borrower's income is one of the biggest determinants of their credit. Another important factor is how much borrowers owe in comparison to their income. The less borrowers owe, the higher the amount they can borrow. Borrowers who always pay on time also tend to build good credit histories. If borrowers are not able to make their monthly payments, they can get into serious problems.

In the financial world, when a person cannot make their payments, their bills are sent to collection. Usually, the firm who is owed money will send the delinquent account to a third-party collection agency. Hiring a collection agency is cheaper for the firm. The collection agency will be in charge of pursuing payment on the accounts that have missed multiple payments.

During this period of collection, people with unpaid bills will receive calls and letters requesting payment. Debt collectors will also ensure this debt collection appears on a borrower's credit report. Since it's not technically illegal, debt collectors can go as far as visiting borrowers' homes to request payment.

The impact of a collection on a borrower's credit can be quite severe. The borrower's credit will drop significantly and he or she may be denied any credit cards or loans in the near future. It can take up to seven years before a collection disappears from someone's credit history.

The best action to take in case of a collection is to pay the money owed quickly and to continue to pay all bills in a timely manner. Over time, the negative effects of the collection will disappear and the borrower will continue to enjoy all the benefits of good credit.

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