Pay For Delete Credit Repair | What You Should Know About Credit Settlements

Your credit score is your lifeline, and fixing it is a priority for any individual who hopes to get a low-interest auto loan, get accepted for credit cards, obtain business loans, or finance a home to start a family. One of the more popular methods of repairing your credit involves “deleting” negative reports and items off of your credit score in exchange for a financial settlement.

On the one hand, this is a good way to remove bad items from your credit that have been dragging it down. On the other hand, though, pay for delete could also have a long-term negative impact on your score, depending on the type of loan and the settlement amount.

In today’s article, we’re going to examine everything that you need to know about pay for delete credit repair so that you can make the most informed decision about whether or not it’s the right choice for you.

What Is A “Pay For Delete” Action?

First off, let’s start by defining exactly what “pay for delete” means because many consumers are often confused by the terminology. The word “delete” makes the process sound like all your creditors have to do is go into a computer and press ‘delete’ to remove items from your account permanently. It’s not quite that simple.

“Pay for delete” refers to the process of getting an old creditor to remove a collection account from your credit report. Collection accounts are reported when you fail to pay your debts, the loan is marked as derogatory, and your personal statement is sent to a collection firm to collect the debt.

Needless to say, this can have a very negative impact on your overall credit score and can prevent you from getting access to the credit and loans that you need to purchase a vehicle, home, or even go back to school. That means it’s in most people’s best interest to get them removed as quickly as possible.

Understanding How Collections Affect Your Credit Score

Pay for delete is typically negotiated with your creditor during the process of debt settlement. Debt settlement is where you contact your creditor and negotiate a deal to repay the loan at a significantly reduced rate (sometimes up to 50% less than the original amount owed). At this point, the creditor just wants to minimize their losses and get a portion of their money back.

During this process, you can also negotiate for the creditor to remove the collection from your account and mark your original account as “settled.” Although this skirts a legal line, many companies are willing to remove the negative mark from your account in return for a little bit of extra money. Technically speaking, you settled your account, so you’re no longer in collections.

The one downside of a settled account is that it can have a derogatory effect on your credit. There are generally three different statuses that can be assigned to a loan:

  • Paid In Full – Positive
  • Settled In Full – Derogatory
  • Default – Derogatory

Paid in full is the best and helps you build your credit. When you pay your loan on time and pay it all off, it will be marked as a fully paid loan and positively impact your score.

Default status has the worst impact on your credit and happens when you stop making payments on your loan or refuse to pay it at all. When a loan is in default for long enough, the account is closed and passed over to a collections agency that is responsible for getting the creditor’s money back. In some cases, the collection agency will open up another derogatory mark on your account until the debt is paid.

How Debt Settlement Works

Now we get to the fun part- debt settlements. So let’s say, for example, that you have a loan that went into default, was closed, and a new collections account opened on your credit. You decide that enough is enough and that it’s time to get rid of the negative mark so you can fix your credit.

So, you either hire a credit repair agency or contact the original creditor yourself. You explain that some situation came up which prevented you from making your payments on time and that you would like to apply for a settlement. If a settlement is made in your favor, then you may get the total amount settled to far less than the amount your originally owed because the company just wants to recoup some of their loss.

Once you’ve paid the settlement, the original account will be marked as “settled in full.” This looks better on your FICO score than a default but still has a derogatory effect.

Does “Pay For Delete” Really Work?

Negotiating a settlement deal alone does not delete the collections account from your credit report. You’ll need to go a step further and talk to the creditor about deleting the collections account from your score altogether, leaving only the original account that was settled. Now you’ll just have one semi-derogatory mark on your credit instead of two negative impacts.

So, in theory, “pay for delete” works perfectly. In fact, it’s in most creditor’s best interest to grant you a credit deletion in order to recoup more of their lost money from you. However, one slight problem could hinder your chances of a credit deletion- the Fair Credit Reporting Act.

How The Fair Credit Reporting Act Affects Credit Deletion

The FCRA was passed in 1970 to ensure that all Americans could view their credit once per year for free, had a foolproof way to fix their credit, and could dispute inaccurate claims on their reports. However, part of the FCRA also makes it very clear that data reporting agencies (such as FICO, your creditors, and credit bureaus) must report accurate data. Any reporting agency that’s suspected of falsifying data can lose access to consumer credit profiles forever.

So, while deletion is possible, it can usually only be negotiated after you’ve paid your settlement in full. Doing so beforehand would be a direct violation of the law. You may find that some creditors are unwilling to perform a credit deletion altogether just to avoid any possible complications.

Should I Try A “Pay For Delete Service?”

As you can see, attempting your own credit deletion negotiations can be difficult, at best. It requires lots of clear, concise communication with your original creditor (which can often be strained due to your derogatory account status), typically requires letters to be sent, and involves a fair amount of waiting around to hear back from various agencies and creditors.

Settling a debt and trying to delete a collection account from your credit is often handled better by professionals who have years of experience and know exactly how to negotiate claims.

In addition to increasing your chances of receiving a positive settlement and getting a credit deletion, a credit repair service can also take the stress out of the situation by handling all direct communication with the creditor. This means you’ll spend less time stressed out on the phone and more time doing the things that matter.

Credit Deletion: Step-By-Step

To summarize, here’s a step-by-step breakdown of how “pay for delete” credit repair works:

  1. Contact the debt collection agency (or wait for them to contact you). Ask them for a letter mailed with their settlement offer. It’s important to have a paper trail for everything in regards to debt collection.
  2. Examine the offer letter and check if there’s a mention of account deletion.
  3. If there isn’t, then your next step should be to send them a counteroffer letter including a clause about how you want your negative collections account to be removed from your credit. You may also offer to pay an additional sum in exchange for the favor.
  4. Once an agreement is reached, the debt collection agency will send you a final contract detailing the settlement amount and your credit deletion (if approved). Save all of these copies.
  5. Make sure that you make your settlement payments on time to prevent future default.

Debts That Can Be Removed Without Deletion

You may be surprised to hear it, but there are actually some debts that can be entirely removed from your credit without having to negotiate a settlement or a credit deletion! As long as you meet certain payment requirements for these debts, then you’ll usually be eligible to have the collections removed from your account altogether, which can massively boost your credit score.

Default Medical Bills Paid By Insurance Providers

As part of the National Consumer Assistance Plan that was passed in 2015, hospitals and medical facilities are required to remove negative collections from your credit resulting from an insurance error. Often, a patient goes in for treatment, expecting their insurance to foot the bill. Sometimes your insurer may deny payment, or the hospital may neglect to send the invoice to your insurance provider, meaning that you’re left with a default medical bill.

Once you work out the details of the payment with your insurer, then you’ll be able to contact the medical facility, show them proof that your insurance provider paid the debt, and they are legally required to remove the negative collections item from your account.

Default Student Loans

If you’ve defaulted on federal student loans (like many Americans have), then there’s still hope for you! In order to change the status of your accounts to current, all you have to do is contact the student loan company, work out a repayment plan and start making payments on your accounts.

Once you’ve completed nine payments (and paid them on time), your student loan accounts will be automatically changed to current, which will help boost your credit score.

How FICO 9 Affects Future Credit Reporting

In late-2014, FICO (the leading data collection and reporting agency in the United States) released their FICO 9 algorithm for calculating accurate credit scores to predict the likelihood of consumers paying their debts. They described it as “the most predictive credit score we’ve ever developed.”

One of the more beneficial features of the new FICO scoring algorithm is that they don’t weigh medical collections as heavily on individuals’ credit (since it’s usually out of their control). Additionally, all collections accounts that are under $100 are no longer reported on your FICO 9 credit score.

Although some creditors will still look at older FICO 8 scores, using the FICO 9 system is becoming more prevalent with each passing year.