Request a full deletion when paying debt to a collection agency. Paid collection entries on your credit report do nothing to increase your credit score. In fact, a paid collection could actually decrease your credit score.
Get collection entries deleted from your credit report by requesting a pay for deletion. Deleting a collection entry especially if it is recent will increase your credit score. Below are several tips when dealing with collection entries on credit reports:
Paid collections do not increase credit scores
Simply paying a debt to a collection agency may bring you peace of mind but it will do nothing for your credit scores. I am not advocating you do not honor your financial obligations. However, I am strongly suggesting you negotiate a total deletion of the paid item from your credit reports in order to raise your credit scores.
Any activity on an a credit account, including payments, can update the date of last activity. Once you pay the old debt, FICO resets the date of last activity to the date you paid the debt and it is viewed as a new negative debt, even though it is now paid.
As a collection account gets older, FICO seems to give it less weight in terms of your credit score. The older a collection account, whether paid or unpaid, the less it factors into your credit score. In fact, when a negative account reaches 48 months or older it is no longer calculated into your credit score. Once you pay the old debt and FICO resets the date of last activity to the date you paid the debt; it is viewed as a new negative debt, even though it is now paid.
No Difference between Paid and Unpaid Collection Accounts
One of the many problems with FICO scoring is that there is no difference between a paid negative item and an unpaid negative item. It is still considered a negative entry. The new FICO 8 scoring model supposedly addresses this issue; however, not many banks and lenders are using the new scoring model as of yet.
When to Negotiate a Deletion
A pay for deletion is a request made by you to the creditor or collection agency to pay a debt in full or an agreed upon percentage in exchange for a deletion of the account or trade-line. Before negotiating a deletion you may want to request debt validation with the collection agency to see if they can even prove you owe the debt.
Who Can Do a Pay for Deletion
Pay for deletions can be done with original creditors or collection agencies. Some collection agencies will tell you it is illegal for them to delete collection entries. That is a lie. The furnisher of information can remove what they have instructed the credit bureaus to report. Just like they put the negative entry on your credit reports, they have the power to delete it.
Settle Collection Agency Debt for Less
There is a possibility you can settle your debts for pennies on the dollar. See How to Settle Debt with Collection Agencies. Some collection agencies will require you pay the full amount in order for them to delete the account. But keep in mind a debt collector who purchased your debt, paid pennies on the dollar for the debt — so why not benefit and settle the debt for less. But even if you have to pay the full amount in exchange for a deletion it can be worth it.
All Negotiations Must Be in Writing
As a rule you should never speak to anyone at a collection agency over the telephone. All negotiations should be done in writing and all letters mailed via certified, return receipt. You must create a paper trail. Your correspondence serves as proof if you ever need to pursue a lawsuit for resolution of the matter.
Also, once you get a collection agency to agree to a deletion, a copy of that signed agreement may be submitted directly to the credit bureaus to speed up the deletion process. Payment should never be sent before you have an agreement signed by the collection agency in your hands. Sample Pay for Deletion Letter
The bottom line in paying off obligations should be to help your credit score. Lenders use credit scores to make credit decisions, such as the interest rate you get when you apply for a loan. It’s not a good feeling being denied for credit or unable to make big purchases like an auto or home due to poor credit scores. Good credit can save you money. There is too much at stake to simply pay-off a debt and get nothing in return, request a pay for delete.