Should you Pay to Clean Up Your Credit Report
Negotiating with a collection agency to pay off a debt, in exchange for removing the item from your credit report, is referred to as a pay for delete.
Should you pay to get rid of accurate items from your credit report?
According to the Federal Trade Commission (FTC) a government regulator in charge of guarding your consumer rights:
“No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this."
Anyone who checks their credit report knows that the report contains a ton of information. The account history of your mortgages, credit cards, student loans, auto loans, and other retail credit make up a large part of your credit report. Your report also contains information about your employment history, where you lived, and basic personal information, such as your name, address history, and Social Security number.
Mistakes happen. To help you spend your time and money in the best manner, so you clean up your report cheaply and efficiently, you need to learn about:
- Mistakes and Errors on Your Credit Report
- Deleting Accurate, Negative Items
- Dealing with Debt Problems
Mistakes and Errors on Your Credit Report
Your credit report is a snapshot of your past credit history, both positive and negative. Negative information includes late payments, charge-offs, third-party collection accounts, public judgments, bankruptcy, foreclosures, and other actions that reflect poorly on your past behavior.
Make sure that you monitor your credit report. You are entitled to a free credit report from each of the major three Credit Reporting Agencies (CRAs) once every 12 months. You can get your report, which does not include your credit score, from AnnualCreditReport.com. You may want to stagger your free reports, getting one every four months from one of the bureaus, so you can follow what’s listed more frequently. Keep in mind that the information can vary from report to report, so be sure you monitor all of them.
Pay attention to errors pertaining to social security number, address, and billing entries. Here are four typical reasons MyFICO.com gives for credit mistakes, as follows:
- “The person applied for credit under different names (Robert Jones, Bob Jones, etc.).
- “Someone made a clerical error in reading or entering name or address information from a hand-written application.
- “The person gave an inaccurate Social Security number, or the number was misread by the lender.
- “Loan or credit card payments were inadvertently applied to the wrong account.”
If you find errors or inaccurate information, then make sure that you file a credit dispute with the CRA. Identity theft is another issue that causes problems on a credit reports. Check your report regularly for accounts that you never opened and for any suspicious activity on active accounts. If you suspect that you’re the victim of identity theft, contact your creditors and the credit bureaus immediately.
Deleting Accurate Negative Information From Your Credit Report
In addition to inaccurate, negative information, your credit report may also contain accurate, negative information.
Wouldn’t it be nice if you could just erase past mistakes, push the delete button, and, presto, your record is clean. The good news is that your negative history is not permanent. In general, according to the Fair Credit Reporting Act (FCRA), negative items remain on your credit report for between 7 and 10 years. For more information about the FCRA law and the period negative items remain, read the Bills.com article about the FCRA.
Some collection agencies accept a negotiated settlement. The settling of the debt will cause a change of the manner the debt is recorded, from a collection/charge-off to a $0 balance, along with a notation that the debt was “paid in full,” or “settled for less than the amount owed,” or something similar. Paying off a collection item with a collection agency will not cause the debt to be re-aged. The 7-year clock does not start running anew, when you make a payment. Instead, the account will fall off based on the original 7-year period. Although you may be able to make your payment contingent on a deletion of the negative account, or a pay for delete, this strategy is in violation of the FCRA, which does not allow for elimination of accurate information.
Don’t confuse the the statute of limitations on debt with how long the debt can appear on your credit report. They are separate issues entirely.
Quick TipBefore you take out a mortgage, you will need to pay off debt that is in collection status. Make sure you review your credit report before taking out a loan. If you see an account that does not belong to you, then dispute the item. Some scrupulous creditors attempt to put bogus items and then accept a pay for delete. Report any unfair actions taken by creditors to the FTC.
Pay For Delete? Or, Pay Your Debt?
Whether you are dealing with inaccurate items or negative, accurate accounts, think twice before you pay money to delete items from your credit report. Make sure that your debt is real and validated. Check to see if the statute of limitation (SOL) expired, so you don’t pay a debt that you are not legally obligated to pay.
Quick TipThe steps described here should correct false information appearing in a credit report. However, if the consumer credit reporting agency does not delete or correct the false information, see the Bills.com method of verification article describing the next steps you can take to fix your credit report.
Don’t fall prey to fraud and pay debts that you don’t owe, just to remove an item from your credit report.
The good news is you can improve your credit score and credit record. Negative items become older and have less impact on your score as time passes. After 7 years (for most items), bad accounts drop off your report, so you can build up a positive, clean report.
If you are dealing with delinquent debts, charge-offs, and collection items, then you need to take appropriate steps to improve your situation. Use a two-pronged approach: attack your debt first, bringing all your debts down to a $0 balance, then work on building and maintaining good credit habits. If you need help to get out of debt, investigate the different debt relief options, including credit counseling and debt settlement.
Instead of paying to delete items, create and maintain a household budget, keep your debts under control, and practice good credit habits. It may take some time to build your credit score, but even the worst credit can usually be brought into very good to excellent range within two years.