Whether you experienced a tough financial situation or simply forgot about a debt you owe, collection debts can happen. They can damage your credit score, but it is possible to get them removed and reverse some of the negative effects with a pay-for-delete arrangement.
This strategy can be tricky and it doesn’t work 100% of the time, but successfully negotiating a pay-for-delete arrangement could help improve your credit. Here’s what you need to know.
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What Is Pay-for-Delete?
“Pay-for-delete is a method of paying and requesting removal of a derogatory item from your credit report,” says Shawn Lane, co-founder and chief operating officer of Financial Renovation Solutions Inc., a credit repair company. In other words, you can offer to pay some or all of the amount owed in exchange for the debt collector removing it from your reports.
While a pay-for-delete request is unlikely to work with the original creditor, a third-party debt collection agency might be more amenable. Though, don’t be surprised if the debt collector refuses: Removing an accurately reported item from a credit report may violate its reporting agreement with the credit bureaus.
A delinquent bill doesn’t go to collections right away. Once a bill goes unpaid for a length of time — often, around 180 days — it’s considered seriously delinquent. At that point, the creditor is likely to decide it isn’t worth the time and cost to continually try to collect the debt and instead will sell it to a collection agency for a fraction of the total amount owed.
In turn, the collection agency will take over and attempt to collect the payment from you.
A bill sent to collections will stay on your credit report for seven years from the date of first delinquency. The more recent a negative entry, like a collections account, the worse the impact on your credit score.
To request a pay-for-delete agreement, you’ll need to send a letter, according to Mike Pearson, founder and managing editor of credit repair website Credit Takeoff.
“With a pay-for-delete letter, you explicitly state that you’re offering to pay the debt (or a portion of it) in exchange for deletion of it from your credit report,” Pearson says. Before sending any payment, be sure to get a written agreement back that acknowledges the terms of your deal.
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How Pay-for-Delete Affects Your Credit
Even one missed payment can have a negative effect on your credit, but allowing a bill to get to the point of being sent to collections is especially harmful. Pay-for-delete could improve your score by removing a negative entry from your credit, but how much will it help?
“This will be different for everyone as each person’s credit file is different,” Lane says. “However, a successful removal of a derogatory collection account from a credit report should generally improve the credit score.”
That said, the positive effects could be minimal if you have multiple accounts in collections.
Donald E. Petersen, an Orlando, Florida-based consumer protection lawyer, says, “Unless all of the consumer’s debt collectors agree to and follow through on the pay-for-delete, the consumer may still have adverse trade lines dragging down their credit score substantially.”
Petersen also warns that some less reputable collection agencies will accept payment and then fail to remove the negative item. It’s important to get the agreement in writing, which he says could be enforced in court.
Pearson notes that if you get that negative item removed, your credit score will go up. However, if you’re working with a collection agency, a pay-for-delete will only remove the collection account.
“The original debt, along with any late or missed payment information, could still appear on your credit report,” Pearson says. “And because the collection agency is likely a different entity than your original creditor, they most likely don’t have the authority or ability to delete the original negative item.”
That means that even if you successfully negotiate a pay-for-delete agreement, it might not make much difference overall.
Another important thing to keep in mind is that if the creditor or debt collector accepts a partial payment as payment in full, it is obligated to report it to the IRS as debt forgiveness if the forgiven amount is more than $600, according to Petersen. In most cases, forgiven debt is considered taxable income, which must be reported and paid in full that tax year.
Alternatives to Pay-for-Delete
Because of the downsides, Petersen says that some consumers are better off pursuing options other than pay-for-delete.
Dispute the error. If you have an account in collections because of an error, you certainly shouldn’t resort to requesting a pay-for-delete arrangement to get rid of it. You should dispute the error with each of the three credit bureaus. You can do this online or through certified mail. Once you submit a dispute, the credit bureau has 30 days to investigate your claim with the creditor. If it turns out there was indeed an error, the bureau is legally required to remove the entry from your report.
Request that the debt be verified. Under the Fair Debt Collection Practices Act, debt collectors are required to provide proof that you truly owe the debt in question. Within the first five days of contacting you, the collector must provide a debt validation letter, which will state your right to dispute the debt within 30 days. You must do so in writing. After that, the collector must then prove it owns the debt, you owe the debt, what you owe and other details. If the collection agency isn’t able to provide this information, you aren’t required to pay and could dispute the error to have it removed from your report.
Pay the bill, even without a pay-for-delete offer. If you are able to get a pay-for-delete from a collection agency, it may help your credit. But the delinquent account with the original creditor will still remain on your credit report. A collection account paid in full reflects better on your credit report. Plus, newer versions of the FICO and VantageScore credit scoring models only ding your credit for unpaid collections accounts. If you can afford to pay it, doing so could save you some hassle, especially if it’s the only collection account you have.
Wait it out. Finally, you might want to think twice about requesting a pay-for-delete arrangement if the debt is older and you don’t plan on applying for new credit any time soon. “Consumers who offer a pay-for-delete have drawn the debt collector’s attention to their financial situation,” Petersen says. In other words, the debt collector now knows that you have the cash on hand to pay your debt. The collector might turn down your pay-for-delete request and instead ramp up efforts to collect what you owe.
“Some consumers should let sleeping dogs lie, especially if they do not plan to buy a house or a car in the immediate future, or if the charge-off is more than three years old,” Petersen says. The charge-off will age off your credit report after seven years.
Additionally, smaller debts tend to have less impact on your credit; amounts less than $100 may have no negative effect at all, depending on the scoring model. The same is true for certain types of medical debt. If this is the case, a pay-for-delete is probably not necessary.
However, keep in mind that just because a debt is removed from your credit report or doesn’t affect your credit score doesn’t remove any legal obligation to pay it.
In summary, pay-for-delete won’t harm your credit. However, it could be a time-consuming process that yields few results, if any.
Before pursuing a pay-for-delete option, consider your credit situation as a whole: If you have multiple missed payments, charge-offs and collections accounts, negotiating a single pay-for-delete agreement will have minimal impact on your credit score. On the other hand, if you have one pesky past-due account that’s dragging down an otherwise clean record, pay-for-delete could be worth a shot.
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