‘Pay for delete’ is a transaction where a debt collector agrees to remove a collections mark on your credit report in exchange for money.
According to the Fair Credit Reporting Act, though, credit reporting bureaus are legally obligated to report accurate and complete information, thus making the practice a legal and an ethical gray area.
Below, we’ll discuss what you need to know if you’re considering a pay-for-delete agreement, starting with how it works.
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How Pay for Delete Works
The idea behind a pay-for-delete agreement is straightforward. Although credit bureaus must report accurate information, collections firms also have the right not to report a collection notice to any of the three bureaus, even though it might violate the firm’s reporting agreement with them.
Therefore, a firm may agree to delete a collections notice from your reports in exchange for money, even though the debt was legitimate. Then, the removal can potentially raise your credit score.
First, you reach out to the firm in writing or over the phone. If they agree to transact a pay for delete, you’ll then need to get all the terms in writing. Finally, you’ll follow up by reordering your credit reports and verifying the firm removed the notice.
How Do Collections Affect Your Credit?
Fortunately, the latest FICO version ignores paid collections, which don’t impact your score. However, if you apply for credit with a company that still uses an older FICO model, such as many mortgage lenders, paid and unpaid collections will still be a factor.
Although a collection notice can remain on your report for up to seven years, the older it is, the less it will negatively impact your score.
Is Pay for Delete Illegal?
Among other things, the Fair Credit Reporting Act (FCRA) stipulates how credit reporting agencies can collect and use the information found in their credit reports. A big part of this is that they’re required to report accurate information.
What happens, though, when your credit report lists a collection notice, and it’s purposely removed by the agency in exchange for money? While the practice isn’t illegal, it’s based on a loophole in the FCRA and rests in murky legal and ethical waters.
How to Negotiate a Pay for Delete
Here’s a three-step process for negotiating a pay for delete:
Call the Collection Agency
To start the pay for delete process, you’ll need to reach out to the collections agency via phone or by mail and let them know what you propose. It’s essential that you keep a written record of everything that goes on, so make sure to take notes if you speak to someone and keep them in an easily accessible folder.
If you decide to send a letter, you’ll want to include the following information:
- The date;
- Your name and address, as well as the collection firm’s;
- Your account number;
- Wording that clearly outlines your proposal;
- What the agency should do if they agree to your terms;
- Your signature.
Get the Offer in Writing
If and when the debt collection agency agrees to your terms, it’s essential to get all the details in writing if they decide to go back on their word. These details, usually included in a formal debt settlement offer, include:
- Both parties’ information (yours and the collection firm’s);
- The details of the debt, including where it originated (e.g., medical bills, student loans, credit cards);
- The remaining balance or an alternate amount to which you’ve both agreed;
- The date that the collection will be removed from your credit report;
- The name and signature of the person handling your account.
Check Credit Reports After the Report
Upon accepting the debt settlement offer, the collections firm should provide you with a timetable as to when the negative mark will no longer appear on your credit reports.
If you find that this hasn’t occurred, especially after 60 days or more, you should send a dispute letter to the firm, including a copy of your proof of payment, and outline precisely what they need to do (i.e., remove the debt within a certain number of days).
Other Credit Repair Options
There are several things you can do to improve your credit rating other than agreeing to a pay-for-delete. Here are some of the most common:
- Dispute errors — You shouldn’t have to suffer a lower credit score because of a mistake on your report. If you find one (or more), make sure that you dispute each one with the three credit reporting bureaus instead of pursuing a pay-for-delete. If you can prove the errors, they could be off your report in as little as 30 days.
- Pay the bill — If you can do it, paying what you owe to the debt collector is the fastest way to start getting your credit back on track. However, keep in mind that your delinquent account with the original creditor will remain on your report. Still, a paid collection will impact your score less than an unpaid one.
- Improve your payment history — Along these same lines, make sure to pay your other debts on time and in the amount requested, which can help slowly lift your overall score.
- Reign in your credit utilization ratio — If you’ve almost maxed out your lines of credit, paying them down and minimizing your utilization ratio can positively impact your score.
- Request verification — After sending your written request, the Fair Debt Collection Practices Act requires that debt collectors prove you owe what they claim in a validation letter. Other details included in the letter are proof that the firm owns the debt and how much.
- Wait it out — Collections can remain on your credit report for up to seven years. Still, if your debt is older and you don’t need to take new credit any time soon, it might be easier (and less expensive) to wait for the negative mark to fall off instead of agreeing to a pay-for-delete.
- Hire a credit repair specialist— Credit repair companies help you identify errors on your credit reports and send dispute letters to each of the three rating bureaus. Some firms also offer credit counseling services to help maximize your money management skills, as well as your score.
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