Credit Collection Strategy

Credit card providers and banks profit by extending lines of credit to consumers that each individual must repay with interest. Unfortunately, if a borrower practices poor debt management skills, he may find himself unable to pay off his debt. Creditors' strategies for collecting delinquent balances often differ, but all companies must follow federal collection laws when recovering unpaid lines of credit.

Threats

If you don't make payment arrangements as soon as your creditor notifies you that the balance is past due, expect to receive threats from the company. A creditor may note the specific course of action it intends to pursue, such as a lawsuit, or make veiled threats to take further action without stipulating what that further action entails. While federal law permits creditors to threaten you when collecting debt, it prohibits companies from threatening illegal collection tactics -- such as notifying others of your debt or physically harming you and your family.

Collection Agencies

Banks and credit card companies often solicit the aid of third-party collectors when recovering debts. Because third-party collection agents work on commission, collection agencies are typically more aggressive in their debt recovery efforts than original creditors. Hiring a collection agency demonstrates to debtors that the debt isn't going to go away and that the company is willing to take the next step in the collection process -- rendering debtors more willing to make payment arrangements in their efforts to avoid further consequences.

Telephone Harassment

Debt collectors are notorious for round-the-clock collection calls. While the FDCPA notes that collectors must only telephone debtors a reasonable number of times each day, what constitutes "reasonable" is up for interpretation. Thus, some debt collectors call incessantly. Incessant telephone calls annoy consumers to the point that they agree to pay the debt -- even if they do not owe it -- simply to make the collection calls stop.

Credit Reporting Status

Instilling fear of consequences in debtors is the most powerful tool in a collector's arsenal -- but it isn't the only tool. Another common collection strategy involves informing debtors of the benefits of paying off their delinquent lines of credit. For example, collection letters typically note that, upon receiving payment in full, the company will update the debt's status on the debtor's credit report to "paid." This does not improve the consumer's credit scores because paying a delinquent debt doesn't change the debt's derogatory status or result in its removal from your credit report. Few debtors are aware of that fact, however, and some will pay off the line of credit due to a mistaken belief that doing so improves their damaged credit.

Sense of Urgency

Creditors and collectors benefit by creating a sense of urgency with debtors. Letters that reflect settlement offers, for example, often note that the offer is only good for a limited period. Consumers are more apt to pay if they feel there is a deadline for doing so after which the company will impose more stringent consequences.