Advice on Settling Debt and Credit Scores

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READER QUESTION

Does it make any difference if I settle a debt that has been charged off, as far as my credit score is concerned?

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Bills.com Resident Expert
Dec 12, 2011
BILL'S ANSWER

Thanks for your questions, Liz. I salute your effort to resolve your debt and improve your credit. As to whether or not you would be better off accepting the collector's settlement offer or paying in-full depends on your current credit score. Someone with very good credit would be well advised to settle accounts in full, but your email mentions that you have two charged-off accounts (at least), so the two options are likely to be similar in their credit improvement effects, so long as the end result is the account being reported as resolved and having a zero balance owed.

You also mention that you don't know how to negotiate with a creditor, so here are a few suggestions I hope you find helpful:

Be polite. This will get you further than anything else when negotiating with a creditor. After all, collection agents are humans too. They spend most of their time dealing with angry and difficult customers, so you may find that by being courteous the creditor will be more likely to give you what you want. Like my grandmother used to say "You'll catch more flies with honey than vinegar."

Be specific. Always let the creditor know that your goal is to clean up your credit and that you would like to have them remove their negative item from your credit report as part of your payment agreement. They don't have to grant your request, but if you don't ask, the answer is always no.

Be flexible. Let the creditor know that you are willing to compromise. Creditors need to meet their objectives, too. If you present a "win-win" situation, then the creditor can feel good about the negotiation.

Be realistic. Some creditors will refuse to negotiate. Don't take it personally. Wait a few months, and then try again.

Be persistent. The credit repair process takes time and effort. And as with many things in life, hard work and persistence will help improve your chances of success.

Get It In Writing. It's important, when resolving a debt, to always get the agreement in writing before sending your money, and to have them also send a letter confirming that the account is resolved and at a zero balance once they receive your payment. This is the proof you'll need in cases where a creditor fails to properly report your payment to the credit bureaus or tries to make additional claims on the account in the future. You can ask them to send the agreement letter by mail or fax, which most will be happy to do to ensure your payment. Make sure their offer letter is on the creditor's letterhead & signed. Also, while negotiating with creditors, it never hurts to ask for the negative item to be deleted in return for payment.

Finally, on the account you previously settled with an original creditor, but are now being asked to pay again by a collection agency. Do not pay twice. Find the check, bank statement, or some proof of your payment along with the any other documentation regarding that account and then contact the original creditor and explain that they need to recall this account from the collection agency and for them to kindly remove this inaccurate item from your credit report. If they are un willing to do so, your next step would be to dispute it directly with the credit bureau showing the item. The FTC has a terrific website covering credit reports, including sample forms and instructions on how to address inaccuracies on your report (the reports are infamous for containing errors). Visit www.ftc.gov for more information.

As you undertake all this, it is also a good idea to keep an eye on your credit report and to make sure that the changes in these accounts are accurately reflected in your report. You can receive a free copy at www.annualcreditreport.com. (This is the only official website for getting a free annual credit report from all three credit bureaus – beware, as there are a lot of other websites offering “free” reports that are not, in fact, “free.”).

Keep up the good work and eventually you see your credit score rise.

Best,

Bill

www.bills.com/

Comments (8)


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Bills.com
February 05, 2010
That will definitely impact your credit score. They could have reported: Closed, paid in full, paid, settled in full, or settled. You can and should send a letter to your creditors with the letter stating that the account should be recorded as paid in full. Check out the Bills.com Debt DIY (debt do it yourself) section of the website on how to find and send these credit correction letters for your debt settlements. Good luck. Bill
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Dee .
February 05, 2010
A couple of collection agencies sent us letters to offer a deal to pay some of our debts for less than what was owed. In the letter it stated that they would report "Account paid in full" and we paid it, then when I checked the credit report, it states..."Account paid for less than full balance" Does that make a difference in how the credit rating will reflect? They did not state what they said they would in the letter, should I send a copy of the agreement to the credit bureau? And what can we do about the original creditor still having a report on the credit report along with the collections agency for the same debt? Isn't that a double negative? And would the credit bureau remove one of them? If so, which one would they remove?
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Bills.com
November 04, 2009
Collection agents buy debt for less than its face value, so keep that in mind when a debt collector talks about fees, interest, and other add-ons to the original debt amount. Get a lump-sum together and make the collection agent an offer. See Debt Negotiation and Settlement Advice to learn some tactics for working with collection agents. You mentioned the debt is old. It may be older than your state's statute of limitations. See Collection Laws and Statute of Limitations to learn the rules in your state. Just because the SOL in your state for that debt may have passed, that does not mean that the creditor has lost the right to ask you to pay the debt -- the passage of the SOL is merely a defense you can raise if the creditor sues you to collect on the debt. If the SOL has passed, you have leverage you can use over the collection agent. You can say to the collection agent, "You can sue me to collect on the debt, but I know the SOL has passed and that is a defense I will raise that will cause the judge to dismiss the case." Back to your question: Arm yourself with negotiation tactics in the link I provided above, and understand your rights regarding the SOL. Give the collection agent a lump-sum offer of 10 cents on the dollar, and take the negotiations from there.
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James .
November 04, 2009
I have an old credit card debt I need to pay off. My credit report shows me owing UNIFUND (the collections company) $2400 but the amount of the original debt was $1000. What should I do?
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Bills.com
March 24, 2009
Felicia - The charge off is part of the account payment history and cannot be changed, as long as the account shows that it is settled with no balance due, you should be fine.
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Felicia .
March 24, 2009
what if i had all ready mad a settledment but it is still on my credit as a charge off.how can i get that off.
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Bills.com
March 16, 2009
Be careful, if this is a payment arrangement that you had setup with the collection agency, then stopping it might be considered a breach of your payment agreement. But, in case there was no agreement, and you were making these payments on your own accord, then you could stop making these payments. You also mention a legal firm in your question which makes me believe that this case might have gone to a legal status, if that is the case, then please consult with an attorney before you stop the payments.
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Harold D.
March 15, 2009
due to my circumstances the collection agency is not responseing to my payments. Should I stop making payments. I do not know what to do. collection agencys, nco financial systems, forster $ garbus and cohen & salmowitz.
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