Many people suffer from a low credit score, often, due to collection accounts listed on their credit report. This can be a pain, since they are so hard to get rid of. Normally, there are two options; ignore or dispute them. Neither is a good solution.
When removing collections, most people start with disputing the account. There are legitimate reasons for doing this. Maybe the account is not yours or the information is incorrect. But many gurus will inform people to dispute everything. In some cases this may work. You may succeed in getting the account removed. However, the account will just get purchased by another collection agency and be re-added to your credit report. As a note, when you file too many disputes on your credit report that are verified, this can decrease your score. In addition, a disputed account could hinder your efforts to remove the account in the future.
Let’s look at the second option, ignoring it. This is the wait and see approach. Hopefully, the account will fall off your credit report. If you are not in a rush to improve your credit or not looking to get a credit card or mortgage, this approach can work. You may be waiting a while. Collections can remain on your credit report for up to 7 years after the first date of deliquency.
What is a pay for delete?
In either case, there may be a better solution. It’s called a pay for delete (PFD). With a pay for delete, you offer to pay an outstanding debit in exchange for the item to be deleted from your credit report. Yes, you can just pay for a collection without a PFD, but a collection with a balance or $0 balance has the same effect on your credit report. Some agencies may have in their terms to delete accounts that are paid. For example, Resurgent Capital Services and Portfolio Associates will delete paid accounts, per the terms of their website. In contrast, many will not delete paid accounts. You still could be stuck with this negative information on your report for 7 years.
This method can also work for charge-offs. Charge-offs can be a double wammy since charge-offs can not only be a negative mark, they can affect your credit utilization. Not only does deleting a charge-off removes a negative mark, but also decreases your credit utilization.
How to do a pay for delete?
A pay for delete can be sent via mail or by phone. Certified mail is preferred since a delivery notice can be received, but regular mail is fine. myFico has a ton great examples of pay for delete letters. The main thing is to get it in writing. If you speak with a representative over the phone, have them email your or send a letter with the terms. An agreement may be made on the phone with the creditor and never delete the account.
It is recommended to start the negotiation low. Start with 30% of the debt. If you owe $1000, ask to pay $300 to have the account removed. The goal is to pay as little as you can for the debt, especially since collection companies pay pennies for the debt. If 30% is not enough, go to 40% and so on. Equally important, the IRS has new rules for debt. If you pay less than 100% of your debt, the IRS considers this income. You could receive an 1099-C from the creditor if the difference in the amount is over $600.
Once an offer is accepted by the creditor and you receive the agreement, pay the creditor. The best option is to send certified funds like a cashier’s check or money order along with a copy of the agreement. After the credit receives the funds, they account will be removed in about 30-45 days.
What are the cons for a pay for delete?
First, you have to have the money to pay off debt. Start with setting money aside before beginning this journey. Second, you may not be successful on your first try. It may take several times before you reach an agreement with a creditor. In many cases, you may not even get a response. For some, it has taken months to be successful. In similar fashion, be aware of the statute of limitations (SOL) in your state. There are some stories of people trying a PFD only to be rejected and sued for 100% of the debt because they were inside their SOL. It’s best to do a PFD after the SOL.
Next, deleting a charge-off may not always be a good thing. If the charge-off is one of your oldest account, deleting it can affect your average age of accounts. Removing it could drop your credit score. This isn’t always the case, but it depends on how the account is reported in relation to your overall credit. If this is true, pay the charge-off to zero. This will keep your average age of accounts in tact and lower your credit utilization.
Finally, accounts in collections can be resold. You may be waiting for a response from one creditor only to find out the account has been sold to another one. Sometimes the new creditor may be harder to deal with than the old one. In addition, the creditor may only report to one one or two reports. There is a possibility the creditor may decide to report the account to all three credit bureaus.
The odds of success with a PFD is zero, if you don’t try. Every creditor and situation is different. Either way, there are a lot of success stories for those who have tried this method.
