If you look on any financial website on how to remove a negative item from your credit report you’ll more than likely see the ‘pay for delete’ option listed. Pay for delete is a negotiation strategy to get a negative listing or trade line removed from your credit report. You negotiate a full or partial payment in exchange for a complete removal.
Do they work? It really depends on who you ask! Some will state they know from experience that it works and they’ve been able to get from under their debt while simultaneously improving their credit from the deletion. Others will vehemently deny its effectiveness saying the creditor will get their money and leave you hanging. To add, if you look at one of the credit bureaus website; they’ll even hint that it is illegal to remove a negative item via this method (go figure, huh).
Honestly, it has worked on occasions yet I would be lying if I stated it works all the time. I can also state that I have not found anything in the law that flags the practice as illegal; the reason credit bureaus are against the practice is because it cuts into their profit. Bad credit is big business. Of course, they’ll state that the integrity and authenticity of the report is ruined by this practice, but so is their inability to accurately report true and authentic information on a credit report so that theory is out the window. I will admit, I personally am not a fan of the pay for delete method. And I’ll share why.
First and foremost, it really only works with collection agencies or 3rd party debt collectors. So, if you have negative information on your report from an original creditor the chances of them deleting anything for payment is pretty slim. They’ve more than likely already charged off your account, have gotten their tax and insurance claim benefit from the write off and sold your debt to a collection agency, so their cool. Why make your life easier?
So, what you’re really doing is negotiating with a company that purchases bad debt to make a profit. You’re offering to pay them money to delete the negative item from your credit report. Let’s say they accept. You get their agreement to delete in writing and send them the money. Now you wait, and wait and wait. Hmm, they haven’t deleted anything! You have it in writing so you send a dispute letter to the three credit bureaus with a copy of the agreement that they promised to delete for payment and… the credit bureaus refuse to delete as well. There’s nothing you can do about this. Collection agencies can revoke their ability to access or report any information with the credit bureaus if they delete what’s believed to be accurate information from your report. Further, by giving the credit bureaus proof that you paid the debt, you pretty much have admitted the debt is yours and can forget about disputing it with them for removal. Now, if it’s in writing you can sue them for violating the Fair Debt Collection Practices Act; which states that a collector cannot lie or use deceptive practices in order to get payment for a debt. But, as one of my clients stated: “Who has time and money to go through that?”
The goal is to rebuild your credit and to restore your score. If you settle a debt with a company, they legally have the right to send you a 1099 tax form for the remaining balance; the IRS views the amount you did not have to pay as income; which you have to pay taxes on. Thus, you’ve just created another bill.
Another thing to mention is that if your debt is being reported by the original creditor and by the collection agency, paying for a deletion will not remove both debts; just the collection. Your score will still be negatively affected by the charge off that is reporting.
If you do decide to go ahead and offer a Pay for Delete, please do so after you have asked them to validate the debt. What you are asking them to do is prove that you owe the debt and that they own the debt and can provide documentation to back it up. If they can’t provide this, they have to delete it anyway. In addition, check your state’s statute of limitation to see if they can legally collect from you according to your state laws. The time frame for a creditor or collector to enforce payment of a debt is limited, if you pay less than the full amount you risk restarting that time limit to day one. You also want to see when the debt will be deleted from your credit report. If it’s going to fall off soon why pay anything towards it? By paying, you risk them adding an additional trade line to your credit report that details the payment received and possibly a new negative ‘Paid Collection’ notation on your report. Lastly, send everything certified mail return receipt and keep copies of everything!
Hope this helps!