Pay to Delete

As a consumer, having good to excellent credit places you in a financial position to stay in control and pay no more than necessary, especially as you seek to make large purchases, such as a house or car. But sometimes, life throws you for a loop, your finances take a hit - and so does your credit.

The dust has settled, yet now you have collections, charge-offs, and late payments placing a burden on your credit. What do you do? Do you pay the debt off? Do you do nothing? What is a viable option that may offer your credit a little relief?

Pay to delete, a term known when a consumer makes a payment to a collections agency or the original creditor to remove or "delete" negative items off their credit report.

What’s important to know first - if your account is owned by a collection agency, the agency has purchased your debt (likely at a discounted rate) from the original creditor. The agency is working to “get what they paid for.” Now you understand why collection agencies are so aggressive.

In an attempt to create urgency around receipt of payment, the collection agency will report the item to the credit bureaus, thus placing the negative item on your credit file. I’ve seen credit scores drop instantly (25 - 75 points).

So, how do you begin to slowly regain control of your credit? Let's just get to the nitty gritty.

1. Pay to delete. If you have an account in collections, you can attempt to negotiate a "pay to delete."

How do you complete this transaction?

When you are ready, contact the collections agency. Request a pay to delete. Require the agency to provide a letter indicating their commitment to delete the negative item off your credit report before you remit payment (usually while you are still on the phone). The letter states; upon receipt of payment, the agency will remove/delete the negative item from your credit report. Once you have the letter, remit payment and ensure you get a receipt. Verify the item has been removed within 30 days of the transaction.

Keep in mind, even if you pay to delete the collections account, the negative history from the original creditor remains on your credit. HOWEVER, the older the debt the less of an impact it has on your credit score. So... you have to decide what works best for you. Can you wait it out, or do you need the item off your credit report now?

2. Is this an acceptable practice with the credit bureaus? Credit bureaus do not like pay to delete. For one, companies have an obligation to accurately report your payment behavior as a consumer. This includes the good and the bad. By "paying to delete," of course the data is skewed, thus potentially presenting a false profile to a lender.

3. Is it worth it to pay and not delete? When you pay a past due account, you must understand; unless the account is removed from your credit report, the negative history of non-payment remains on your credit report for up to seven years. The account will simply receive an “update” noting payment.

While “pay to delete'' may work in some cases, you must prepare yourself if the creditor does not accept your plan or is not willing to negotiate at all. Your odds of being successful will increase if:

You are prepared to pay the past due balance in full immediately

The credit reporting timeline is nearing (meaning your seven year sentence is almost up)

The original creditor has provided evidence that the debt is in fact yours. Even if the credit reporting period or statute of limitation for collecting on the debt has expired in the traditional form, there may still be a chance for litigation.

If at all possible, work to avoid negative items being placed on your credit. When life happens, this is a strategy that may offer you some relief.