Negotiate Credit Rating When Settling Debt with Collection Agency

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Note: This page addresses debts that are with a COLLECTION AGENCY. Here is the article addressing debts still with ORIGINAL CREDITORS.

One very important, but often overlooked, area of debt negotiations is negotiating your credit rating. What exactly does that mean you might ask? Well, when you look at your credit report, there are notations after a listing such as, “paid as agreed” or “charged-off” and these notations affect your credit score. When you are in negotiations with a collection agency, you want to make sure you are able to change these listings to your advantage. Because what’s the point of settling the debt when it still may be hurting your credit score?

Information on Listing Notations

When dealing with a collection agency, always insist on the complete removal of a listing from a collection agency. Having a “paid as agreed” notation on a collection account will not help you. No matter what the rating, every collection account is a negative mark. It’s no skin off their nose to delete the listing.

If you do make a deal with a collection agency and wind up making arrangements to pay, and there is an original creditor reporting a charge off on your credit report, you can do a bit of clean up. Contact the original creditor and tell them the debt was “settled” and they need to update your account to reflect this. Technically, they are obligated to do this, as this is the truth. The original creditor’s notation on the account should at the minimum say “settled for less than owed,” “settled charge-off” or “paid was charge-off” and the balance should reflect ZERO. For the creditor to NOT do this is a violation of the FCRA.

Don’t contact the original creditor about this if you plan on disputing the account through the Method of Verification system or just a plain ole credit repair dispute. If you dispute the listing and can’t get it off your credit report, only then should you contact the original creditor about updating their account notation.

Imperfect Credit Listing as Part of Your Settlement

You may find that some of your creditors are willing to hold out longer than you are before agreeing to delete the negative listing from your file. It may seem that they are unwilling to delete the negative listing under any circumstance. Once again, let it be said that every creditor will eventually give you what you want if you speak to the right person, are patient and persistent, and make the right offer. But if you are on a timeline, and even your attorney can’t get them to agree to full deletion, you have a couple of other options.

List the account as “Paid” only. You may counter-offer that the collection agency list the account as “Paid” rather than delete it altogether. This is a true indication of the status of the account and many creditors will concede and agree to this wording. A “Paid” status is still very negative for a collection account or an account that will show “Paid Charge-Off” or “Paid Repossession.” You should insist that the account show “Paid” only and that all other negative notations, such as “Charge-off,” “Repossession,” or “Collection,” are deleted at the same time. A simple “Paid” notation on a regular trade line is neutral and should not hurt your credit.

List the account as “Settled” only. You may counter-offer that the creditor simply lists the account as “Settled” rather than delete it altogether. “Settled” is an inherently negative listing but not as negative an unpaid collection. Don’t agree to a “Settled” listing until you have exhausted all other possibilities. “Settled” will still trigger a credit denial. If you agree to a “Settled” notation, you must continue to work hard to delete the notation through the credit bureau dispute process.

List the account as “Paid Charge Off” or “Paid Collection” or “Paid was 30, 60, or 90 days late.” This will be the creditor’s first choice, and your last choice, of what to place on your credit report once you have paid. These notations are almost as damaging as showing the same debt unpaid. It sometimes happens that an account is easier to get deleted (through credit bureau disputes) once it has been paid – the creditor now has no compelling reason to keep the negative listing on your report. For this reason, it is still usually a good idea to settle even if the creditor won’t budge on deleting or positively modifying the negative listing.

Now you’ve negotiated your credit rating, the next step is paying the debt. How you pay can make a big difference, so be sure you read our article on the correct ways of paying your debts.

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