Get Personal Loan Rates
Old, delinquent collection accounts can crop up like pesky weeds in a garden when you’re trying to improve your credit score. One strategy for removing these old debts from your credit report is using a pay for delete letter. This is a letter that requests the deletion of a collection account on your credit report in exchange for payment. It may sound great, but pay for delete letters exist in a legal gray area, and it might be better to avoid them.
What is a pay for delete letter?
A pay for delete letter asks a collection agency to remove an old, account that has been paid off from your credit file so it will no longer negatively affect your credit score. The goal isn’t necessarily to negotiate a lower payment amount on the balance. It’s usually just focused on getting the collection agency to agree to remove the account from the borrower’s credit report upon payment.
You can find pay for delete letter templates online, but few from trustworthy sources. It is easy enough to create your own instead. Generally, a pay for delete letter should include:
- The account number and balance
- An agreement to pay the account in full (sometimes for a lesser amount) in exchange for the removal of the account from the borrower’s report with the three major credit bureaus
- A request to sign the agreement and return it
- A deadline for the collection agency to respond
While it sounds good in theory, since removing older, past-due accounts can increase a credit score, there are a couple of serious concerns about this strategy.
Do pay for delete letters really work?
Since collection accounts remain on a credit report for up to seven years after the original delinquency date, it’s no wonder borrowers want a process like the pay for delete letter to work. However, wanting something to work doesn’t mean it will. What are the problems with a pay for delete letter?
First, a creditor is not obligated to remove information from a credit report if that information is accurate. In fact, as discussed in the next section, creditors could risk a fine if they remove accurate information. In addition, there’s not much recourse if a creditor agrees to remove the information but doesn’t. In that case, the borrower will have wasted their power to negotiate down the collection balance by just focusing on removal of the negative information.
Is pay for delete legal?
Technically, information that is correct on your credit report is meant to remain until it naturally falls off over time. While a consumer is well within their rights to dispute inaccurate information, creditors have a right to evaluate a consumer based on the full picture of their spending and bill-paying habits. Thus, accurate information — no matter how damaging — belongs on the credit report.
According to the Federal Trade Commission, "No one can legally remove negative information from your credit report if it’s accurate and current."
Furthermore, the Fair Credit Reporting Act requires creditors to furnish information that is both accurate and complete. The fine for noncompliance can be as high as $3,993 per violation. So, if the FTC decides to specifically call out pay for delete letters as a violation of the accurate and complete requirement of the FCRA, creditors who remove information, as agreed to in a pay for delete letter, could expose themselves to high fines.
Should you use a pay for delete letter?
With the potential problems associated with pay for delete letters, borrowers are likely better off pursuing other methods of improving their credit. These include disputing inaccuracies on their credit reports and negotiating lower pay-off amounts with creditors.
- By disputing inaccurate past-due payments and accounts, borrowers can get false, score-damaging information scrubbed from their report. This change can make a difference to a credit score.
- When negotiating lower pay-off amounts with creditors, borrowers may put themselves in a better position to pay off the debt completely, which will reduce their overall debt. This reduction in total debt may improve a credit score, even if paying off a collection account generally doesn’t guarantee a positive effect.
Dispute and negotiation letters
Whenever you see inaccurate information on your credit report, you should file a dispute with the associated credit reporting agency. You can do so by:
- Filling out the template letter available through the Consumer Financial Protection Bureau and mailing it to the relevant reporting agencies
- Disputing the information online through the relevant agency’s website
If a debt is accurate, it could be a good idea to negotiate a lower balance. You can do that with the help of a debt consolidation company or by working with the collection agency directly. It’s extremely important that you get this information in writing rather than on the phone before you make any agreed-upon payment. And you should monitor your credit report for the next few months to ensure that the account balance shows the new zero balance.
What to do if your dispute or negotiation is rejected
Just because you submit a dispute to a credit reporting agency doesn’t mean the data you’re disputing is inaccurate. In a similar vein, just because you ask a creditor to offer you a lower pay-off balance doesn’t mean they will.
What to do when a dispute is denied
Get familiar with all your rights according to the Fair Debt Collection Practices Act. If the credit bureau finds that the debt reported is accurate, then your next step is to make sure the collection agency is adhering to the FDCPA guidelines. These include restricting the hours that collection agencies can call you, prohibiting harassment or abuse by collectors and requiring collectors to cease contact if asked by you in writing.
Consider moving forward with a negotiation to reduce the pay-off amount. This might not remove the account from your report, but it can reduce your overall debt, which may have a positive effect on your credit score.
What to do when a negotiation is rejected
If you were unsuccessful negotiating the debt on your own, you might try again by working with a debt settlement company. They might get better results negotiating with your past-due creditors.
Despite any denial, remember to keep paying your other bills on time. This prevents other accounts from going into collections and helps maintain your credit score.
The bottom line
A pay for delete letter sounds like a good idea, but it’s an unenforceable attempt to do something that might potentially skirt FTC regulations. Instead, when trying to improve your credit score, stick to tried-and-true methods that are approved and supported by regulators.