Managing Debt

Will Settling A Collection Account Hurt My Credit?

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Will settling a collection account help your credit scores? Or could it harm your scores? That’s what our reader Dave wants to know. He wrote:

My credit card account went into collections. A law firm bought it and sued me. Now they want to settle. If I settle what are the pros and cons of them reporting the settlement to credit bureaus? I heard reporting it looks good on credit and shows I’m taking action. Some in your industry say it makes the debt brand new therefore affects FICO. What are the facts?

If you can afford to settle this debt, it’s a good idea to do so, but not for the reasons you may think. As far as your credit reports are concerned, there are three types of negative items that may already appear on your credit reports:

  1. Charge-off. The original credit card account is likely listed as a charged-off account on your credit reports. This account status will remain on your reports for seven years from the date the account was charged off.
  2. Collection account. The current collection agency law firm is likely listing the account on your reports as a collection account. Collection accounts may be reported for seven years and 180 days from the date you fell behind on the original account leading up to when it was placed for collection. (For practical purposes, this usually means the collection account is reported seven years from the date the account was charged off.)
  3. Judgment. It’s not clear to me whether the law firm has already obtained a judgment in court against you or if you are trying to settle before it gets to that point. A judgment can be reported for seven years from the date it was entered by the court (if paid) or until the governing statute of limitations expires (10 – 20 years in many states).

With all of these items, the damage has been done so paying or settling the debt isn’t likely to improve your credit scores.

If settling won’t help your credit scores, then why pay at all?

First, if the collection agency doesn’t have a judgment against you, then settling the debt before it gets to that point can help you avoid another damaging item on your credit reports. But more importantly, once a judgment is obtained against you it can be a lot easier for the judgment creditor to collect from you. Depending on the laws in your state, it may be able to go after your wages (wage garnishment) or property (such as bank accounts) to collect.

As far as your credit goes, don’t expect your credit scores to improve because you settle. But they aren’t likely to get worse, either. Settling won’t extend the length of time the items above can be reported, nor will it make the debts appear “new.” Once you’ve resolved them, though, the balances should be reported as zero. Check your credit reports about two months after you’ve paid it to confirm that’s the case.

What you are trying to do now is put this debt behind you and avoid further expense and complications that come with having an outstanding collection account and judgment against you. Once the debt is resolved, you can focus on rebuilding your credit. You should find Credit.com’s free Credit Report Card helpful in that regard.

Please note, I am assuming that you owe the debt and the amount is correct. I also assume the debt is not outside the statute of limitations. If that’s not the case, then you could consult with a consumer law attorney to find out whether the collection agency law firm’s tactics are legal.

Finally, be sure to get a written agreement before you pay them. It should clearly spell out the terms of the deal and the fact that there will be no remaining balance. If you are settling before they have actually taken you to court, then make sure they state they will drop the lawsuit if you meet the terms of the settlement. If you just get a verbal agreement, the collector may try to collect the remaining balance or sell it to another collection agency. I’ve seen that happen.

I am not an attorney and this is not legal advice. For legal help with debt collection matters, you can search for a consumer law attorney at Naca.net.

Image: Stuart Richards, via Flickr

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  • http://www.ZipDebt.com Charles Phelan

    Great advice, Gerri. I just want to point out that settlement in this situation will improve Dave’s debt-to-income ratio, thus making him more creditworthy even though his FICO score itself won’t change much. Most lenders do count unresolved charge-off balances as debts still owed, and therefore they are included in a standard DTI calculation. As you pointed out, a settlement should result in a zero balance being reported, and then the item would no longer be included in a DTI analysis.

    • Gerri Detweiler

      Good points Charles.

    • Oscar

      Hi Charles,
      Thanks to your response, I believe I am closer to the answer I am looking for. I have settled a few credit cards due to financial hardship. One of the creditors is reporting that I am past due over even after I settlement on Sept 2010 (2+ years!). Shouldn’t the creditor report a $0 balance?

      • Gerri Detweiler

        Oscar – If you settled this debt and there is no balance due your credit reports should list a $0 balance. You may want to read our article about disputing credit report errors: A Step-By-Step Guide to Disputing Credit Report Mistakes

        • Oscar

          Gerri,
          After reading your comments and recommendations to read the disputes article I decided to do some research. And now I have another question whether it’s legal for a creditor to collect settlement dollars within term agreements then pull-out of the arrangement and report the difference as past due?! I’ve paid the pre-arranged settle amount on Sept. 2010 and now I’m coming to find out that the creditor recalled the debt from the collection agency on the last date the funds were due per the agreement. This is unfair!! At this time I have an e-mail out to my credit settlement representatives.

          • http://consumerrecoverynetwork.com/ Michael

            Oscar – I read your comment as stating you are working with a debt settlement company. Combining that assumption with the time line you shared, I would assume the settlement was with either Chase, BofA, or Capital One. All of whom have had a go at yanking collection files placed with an agency who have made settlement arrangements, collected a payment or two on the agreement, and then unceremoniously pulled the account.

            The settlement company you are working with should be your first advocate in helping you resolve this. In the event they cannot, it would be good to line up the things you may need to resolve this through other means.

            Do you have a copy of the settlement letter or agreement that was made with the collection agency? If not, get a copy.

            Log into your escrow account (hopefully one was used by the company you hired), and print out screen shots showing funds and transactions made related to your settlement.

            Ask the company you are working with for a record of all that transpired with this settlement.

            If the company you are working with cannot get this resolved, post an update here and lets explore some other methods.

          • Oscar

            Hello Michael,
            Thanks for weighing in on my situation. I spoke with my debt settlement company, Pathway Finanical Management of Garden Grove, CA. They advised that they believe the collections agency Allied Interstate never notified Bank Of America that i’ve made a one lump sum payment to settle the account, and after a period of time Bank of America recalled the collection debt and the payment made from an escrow account under my name through Global Solutions. I’m waiting for a resolution within 2 weeks. However, would it be worthwhile pursuiting a lawsuit against Allied InterState or BoA for failure to keep up with their end of the settlement agreement? The payment was made on Sept 2010 within term. I don’t know what I’d be suing for; I’m unhappy that it hasn’t been resolved.

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  • Mickee Hernandez

    Gerri, I have a few issues with this article, mainly the lack of information for the consumer (who is usually poorly represented).
    If someone is contacted by a collection agency, they can send them a cease and desist letter telling them they refuse to work with them, not to report any derogatory information, and cease communications. They MUST: State they will only work with the original creditor, they do not formally acknowledge the debt, they do not authorize the release of their information to any credit agencies or their affiliates. These are the basics. I have done this in the past with credit issues. According to the Fair Credit Reporting Act (FRCA) and Fair Debt Collections Act, any collection agency that violates particular statutes of the FCRA and fair debt collection act can be held liable for harrassment, and punitively charged for each occurence. Once they tell them to cease and desist (back off) they (the collectors) can be fined $1000.00 per violation. Settling with a collection agency is often a catch 22. While the account gets a zero balance, it is not always a good thing. Multiple instance of the same account with different account numbers is how the collection agencies get away with double and quadruple reporting of the same accounts. Here is how. The original creditor gets a tax write off, and sells your account to a collection agency (Account and bad mark #1) for pennies on the dollar of the original debt. For example they pay 100$ for a 1000$ account. This agency then attempts to collect a fraction of the debt reporting to the credit bureaus that you owe them the oriiginal amount of 1000$ (account and bad mark #2) The ‘account’ is often resold over and over to different agencies again for pennies of the original 1000$ (each report to your credit) (accounts and bad marks # 4,5,6 and so on) Often when an agency sells the account again, and is no longer the owner, the information is not updated by the collection agencies, and often the information is incorrect. (accounts and bad mark #7,8,9 etc..) Often they will offer 50% to 70% reduction of the balance lets say they will settle for 350$ Doing the math, they paid 100$ for the account, and made a profit of 250$ which is 250%. However, typically they will not remove negative information. If a consumer refuses to work with collection agencies, and formally tells them to cease and desist, they have to. When dealing with the original creditor, the consumer should always send a certified letter to them, inform them that they have refused to work with their “assignees” and wish to negotiate a settlement with them. ALWAYS use certified mail. When and if they do settle, get a certified check from the bank, photocopy it, send a letter stating that when you receive in writing the standards of settlement agreed and the guarantee that negative iformation will be removed, they will send via certified mail the check of which they have sent a copy. If they don’t agree, the consumer can always put the check back into the bank. Of course, always look out for scams that require to buy a book to learn this information. I do not offer that. There are many books available at the pubic library that can help your readers. Finally, many collection agencies represent themselves as Law Firms. They are in fact, collection departments referred by law firms, not the actual law firm. thus the scary envelopes. If they say that they are the law firm, consumers can ask for proof, and verify themselves. If the threat is that they are going to put the consumer in jail or some ridiculous sounding punishment, they are breaking the law, and fines can be levied. I understand that the information is so vast that is it nearly impossible to fit in an internet article, however, is it not the responsibility of journalists to present the facts completely? I hope you understand that I am not claiming you biased, I just question the completeness of this article. No, I am not an attorney. I am a citizen who was pushed around by creditors until I looked up information and took a hard stand against hte abuse of credit reporting systems and their users.

    • http://www.credit.com Barry Paperno

      Hi Mickee, Thanks for providing some good information for people who are being harassed by debt collectors and/or are disputing the validity of the debt. In particular, communicating with a collector in writing vs. over the phone or in person, always sending correspondence via certified mail, and knowing your rights toward abusive collectors is very good advice whenever dealing with collection agencies. For people who acknowledge owing the debt and might be willing to settle the debt for less than the full amount due, a cease and desist order may not be the best course to take, however, as it’s going to be difficult to arrive at a settlement if the collector is not allowed to communicate with you. In fact, it may just encourage the agency to sue you. Also, you may not have the option to negotiate with the original creditor having filed a cease and desist order, nor, if you could, are there any assurances that they would be any better to negotiate with than the collection agency. And lastly, a cease and desist letter alone cannot prevent negative information from being reported by the agency to the credit bureaus — especially when the owner and validity of the debt is not in question. While this article doesn’t address those situations, as the focus is on the credit implications of settling a debt you owe, much of the information you provide would be good to include in a future piece that discusses harassment by collectors when the debt is in dispute.

      • Mickee Hernandez

        The issue with the collector is that they will not remove anything negative. You will still have several bad marks on your credit. The sease and desist is simply a way to mitigate the abuse by collectors. They MUST stop, and they cannot report false information. The best loophole in the law, is that you never contracted with them. In order for a debt to be valid, they must show a legal contract. Collectors do not have that with you. Ergo, they cannot report false or erroneous information. The best way is to cease them, contact the original creditor, let them know you “fired” (easiest way to explain) the collection agency because you want to settle the account with them. Be aware that they may have already “charged off” the account, but if you use certified letters and show completely your willingness to repay, it looks better if they try to take you to court. Writing is the best way to get results. Never allow agreements from assistants. ALWAYS make sure you get a signed copy of any agreement, and never go back on a deal.

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  • Kab

    Good for you to take the time to write all this information!! I’m sure it will help a lot of people. I learned a few new things myself.

  • Darrell

    Wow! Lots of good info in this article that I haven’t seen before anywhere. I have been going through many of these problems since becoming disabled 3 years ago.

    With my situation I was able to continue to pay my mortgage and all creditors that had leins on items I wanted to keep. I stopped paying all but one of my credit cards, my credit union agreed to keep my visa open as long as I remained current.

    Finally after almost three years I have begun settleing with my creditors collection agencies for on average 40% on the dollar. My plan on settling my accounts now appears misguided because one of my largest creditors $37000 signature loan won’t settle for less then $18K, being on disability that is way out of my league. I have told the collection agency I could come up with maybe $5000 by selling my car but they gave me till the 20th of this month to come up with the $18k or be sued. Knowing I took this loan over the phone (yes I had golden credit) and never signed any documents I’m tempted to tell them go ahead and sue me then demand to see the original loan docs which I don’t think they can produce, but that’s not honest which has never been my style.

    I have paid off through settlement 6 creditors and now this one large one threatens to push me into BK which means paying any of them was a big mistake. At my age 58 I’m wondering if I should even worry about a judgement, my home is upside down and they can’t attach my SSDI so what can I lose?

    This is so stressful at my age after working hard since I was just a young kid to end up like this.

    Darrell

    • http://www.credit.com Gerri

      Darrell –

      I can only imagine how stressful this is for you. Have you talked with a bankruptcy attorney to find out for sure what they can and cannot do to collect if they get a judgment against you? That’s what I would suggest as your next step.

      If you are correct and there is nothing they can really do to collect even if they get a judgment, then you tell them that and let them do whatever they decide to do. And remember – judgments often get settled too.

  • Jeremy

    Thanks for all the info– I have a few questions, as I’m now stuck in between the situation(s) described above. Previously, I came to an agreed settlement with my original creditors; mainly because I could furnish no written proof I didn’t owe the debt, and just to be done with it. However, I spoke with the collection agency today who said they’d only change the account to “Settled” rather than completely remove it from my account (I have a signed and notarized agreement with the creditor that they would ‘withdraw my name from the account once the debt is paid’).
    The collection agency said that I would need to still pay/settle with them in order to get this fully removed from my credit report, and now I feel like I’ve just wasted a lot of money in order to get this issue resolved only to have nothing resolved. The collection agency will not remove the item from my credit report unless I pay them…
    1) Will the cease and desist letter have any effect at this point?
    2) Will the “settled” status on this account have any positive effect on my credit report, or did I just waste money?
    3) Is there anything I can do to have the collection agency remove this from my credit report without having to pay them?

    Thanks for all your help

    • http://www.Credit.com Gerri

      Jeremy – I am confused. Why are you dealing with the collection agency if the creditor said it will settle the debt directly with you? The collection agency shouldn’t be holding your credit hostage to get you to pay a debt that you are resolving with the creditor.

      • Jeremy

        Hi Gerri- when I found the item on my credit report I contacted the agency who informed me where the debt had originated, which tuned out to be my old landlord, a management company (on a sidenote I did ask the collection agency for written proof of the debt that they never produced for me, even to this day). After speaking with the management company to try and get the debt removed, I realized I couldn’t produce any proof that it wasn’t a valid debt that I owed. To be completely done with the matter (or so I thought at the time) I was offered a lowered settlement with them to settle the debt, in return for them withdrawing my name from the debt (a previous roommate was also named on the debt), and from what I may be able to produce via email, agreement by the management company that they would have the item deleted from my credit report.
        After speaking with my creditor about getting the debt removed, they said I would have to sign a separate release with the collection agency, separate from the signed agreement I had with them. When I spoke with the collection agency to try and get that release, they informed me that I needed to settle and pay directly with them as well. I spoke with them today and told them I settling this debt with the creditor directly and that I will not be paying the collection agency for doing absolutely nothing. I was never informed of this debt by them, nor was I ever sent any information regarding the validity of this debt after it had been requested. What are my options here? Did I really just pay a lot of money to my old management company for nothing?

        • Gerri Detweiler

          Jeremy:

          This scenario doesn’t sound right to me at all. The collection agency is telling you that you have to pay the same debt twice to get your credit report corrected? (I am not saying you don’t understand what they are telling you – I just think you may be getting pushed around here.)

          I’d suggest you talk with a consumer law attorney who sues collection agencies asap. They would likely be willing to help you for free since the collection agency must pay the attorney’s fees if it is breaking the law. Be sure to tell the attorney you requested validation of the debt and didn’t receive it. That’s illegal.

  • Maria

    If you settle for a lesser amount, can you still be taxed on the discharged amount?

    • Gerri Detweiler

      Yes, Maria, cancelled debt is considered taxable income but you may be able to avoid paying taxes on it if you qualify for an exception or exclusion. I suggest you read my article, A Slew of Tax Tips to Clean Up Your 1099-C Mess for more information.

  • Ian

    Wow, this is very helpful but it doesn’t quite answer my questions. Maybe someone can help me out. I’m a graduating accounting student with a minor in finance. I’m applying for jobs and it seems like every position in the accounting/finance world does a credit check. My credit is horrible because about 8-9 years ago, I defaulted on two credit card debt. The larger amount ($3400) ballooned to $10,000 (because of interest and fees). The smaller amount grew to about $3000. With the larger amount, I was sued and there is judgment against me for $3450. My questions are, I’m ready to clean up my credit so that I can land a job, how would I go about this, what is the fastest way, and what is the least expensive way to do it? Also, everyone keeps talking about the SOL, but both my debt are older than the 7 1/2 years and are still showing up, how do I get them to disappear. Lastly, even though there is a judgement against me, it seems like that debt is still being sold to other collection agencies is this normal? Please help, I’m ready to start my career.

    • http://www.credit.com Gerri

      Ian,

      I have moved your question to the Credit.com forums. You’ll find my response here.

  • John

    Just wondering what I should do and am looking for advice. I have a judgement against me from back in 2007 for around 6k. I have been completely unable to do anything about it until recently. I was hoping to get a settlement from the collection agency that now holds it and was wondering what a good starting point would be in offering a settlement. Would 4k be acceptable? I know the balance with interest and everything will be around 9k now, but I am just looking to get this off my mind now that I can. Is there any chance I could contact the original credit card company that obtained the judgement and negotiate with them, or is it beyond that now? I could possibly go as high as 5k for an offer, but would like to hold back that amount to pay off a 2nd debt. Any suggestions greatly appreciated.

  • John

    Just looking for some advice and best guesses. I have a judgement dating back to 2007. It was around 6k at the time the judgement was filed and I had no way to pay it off. I want to offer a settlement now that I am able and was wondering what a good offer would be. Would 4k be acceptable? I could go as high as 5k, but would like to use the extra 1k to pay off a different debt. Is it possible to contact the original creditor and deal directly with them or has that ship sailed once a collection agency got their hands on it? Thanks for any advice/comments/suggestions you may have.

    • Gerri Detweiler

      John,

      You won’t know until you try. While you can certainly offer 4,000 or 5,000 you may want to start your negotiations even lower and see where you can get with them. Remember judgment creditors typically have greater collection powers so you want to be very careful about what you say to them.

      You’ll likely have to deal with the company that owns the judgment at this point. It’s been filed in court and whomever filed the judgment has the right to collect.

      One thing is absolutely non-negotiable. You must get any agreement in writing before you pay and it must state that they will file a satisfaction of judgment once you have made the agreed upon payments.

      • john

        Gerri,

        Thanks for answering. I have typed up a settlement offer letter I plan on sending out today. I have offered 3500 to start with the stipulations being that they list the debt as Paid In Full, that they cannot resell the balance to anybody else, and that they cannot add anything else to my credit file besides the balance being paid in full. I am sure they will come back and ask for more, but I am hoping that by starting at that number, they will counter with a number I can accept and just pay it. If not is it bad to counter their counter to something in the middle? I am hoping to get out with around a 50 – 55% payment. Just wondering what your thoughts would be. Thanks.

        • Gerri Detweiler

          John – It’s worth a try! Let us know what happens.

  • Flora

    Hi Gerri,

    I feel like I’ve made several mistakes when currently dealing with a collection agency. I was burned no more than two weeks ago due to a medical bill. When a collection agent phoned regarding the account, she verbally agreed that nothing would be reported to the credit bureaus as long as I made the full payment and that I was lucky because Multicare allows 60 days to collect rather than 30 days. I decided to just pay the debt off completely because my husband takes his credit very seriously, and I didn’t want any further issues. No more than a month later I receive a letter from the collection agency stating that the account had been satisfied and a $0 paid-in-full balance had been reported to the credit bureaus which dropped my husband’s FICO 94 points! Is this legal?! To make matters worse, I just received a call from a collection agency today stating that my HOA had put us to collections for non-payment. I was completely floored considering we had a direct payment set up with them. Making a long story short, the collection agent said the account hadn’t been reported to the credit bureaus because it was within 30 days. I requested a letter stating that nothing regarding this account would be reported to the credit bureaus AT ALL (not even showing a $0 balance paid in full). She insisted on emailing, and this is what I received (I’m using intials for our last names. I’ve copied and pasted, so her grammar really is that horrendous)….

    “This to state the account recently place by Silver Pointe COA has not be reported to the W’s or T’s credit report. Saba does not report until the 30th day of placement of an account.

    Sincerely

    Carol Adams
    Supervisor”

    I asked why there was no account number attached, and she stated that there wasn’t one but gave it to me over the phone. I asked again about it reporting to the credit bureaus. She reiterated that nothing would show…it would be as though it never existed. Should I trust that she’s being honest, or is this pretty much the bs they pull to get you to pay only to report the account to the credit bureaus as soon as you do? Even with a $0 paid-in-full balance. I know it’s a lot of info, but thanks so much for letting us pick your brain :)

    • Gerri Detweiler

      Hi Flora,

      I’ll address the HO issue here since you mention the medical collection in your other comment. I think you are probably going to be OK with this one. It sounds like they won’t report the account if it is resolved immediately. Of course I will suggest you monitor your credit reports for at least a couple of months just to be sure. If it does show up, then we’ll strategize on what to try to do to get it off your reports.

  • Flora

    I did want to mention that after contacting the medical creditor, they were more than happy to make a call to the collection agency to cancel the account they placed with the collection agency (it was their error). They made this happen in less than an hour. The rep also informed me that the collection agency reported the account to the credit bureaus the SAME DAY I’d made the payment. The HOA, however, was unwilling to deal with me and said to take it up with the collection agency. Does that email I received from the Supervisor seem fishy? I feel it’s very cryptic and that they plan on reporting to the credit bureaus as soon as the 30 days is over. Can they do that even though I’ve already satisfied the account? Thanks again.

    • Gerri Detweiler

      Flora – I am glad the medical provider was able to help you resolve this. Be sure to monitor your credit reports, as I mentioned above, to make sure it’s off there and stays off there. In addition to using a credit monitoring service to check activity on your credit reports for a few months, you may also want to use our free Credit Report Cards to monitor your scores every 30 days. If you see a drastic change in your scores, you’ll know it’s time to check the reports again.

      In addition, your situation illustrates why the Medical Debt Responsibility Act is so important. Consumers who find a bill slipped through the cracks shouldn’t have to worry that their credit scores will be affected for seven years as a result! If you feel the same way, I’d encourage you to share your story with your legislators and tell them you support the legislation that would change it.

  • Fiona

    Gerri can you answer my question? I have a medical bill that I know needs to be paid. The hospital has send me bills and I have been paying whatever I can each month. A few weeks ago they called and said I could make payment arrangements and they determined the amount to be paid each month. I explained to them that their arrangement was out of my reach and gave them a figure I could pay each month until paid in full. They replied with “these are our terms and you must adhere to them”. I continued to send what I could afford. Then I receive a letter from the hospital collection department stating to send the payment in full or contact their office to make other satisfactory arrangements to resolve the debt. So I called, they determined what my monthly payment should be, which is higher than the first time I talked to the hospital. I gave them the dollar amount I could afford and they replied “unless you make the payments we have arranged, this account will be reported to the credit bureaus as a negative collection. I don’t know what to do, I simply cannot afford their dollar agreement, yet I don’t want negative reports on my credit report. First can they really determine the amount? Second, even if I make my payment (not what they say I should pay) each month, can they still report it as negative? Please advise…….would very much appreciate it. Thank you

    • Gerri Detweiler

      Unfortunately, Fiona, they can typically can require you to pay a certain amount and if you can’t, they can usually send you to collections. I wrote about that in this story: Four Medical Bill Myths That Can Cost You Dearly.

      As far as things you can do – if you haven’t done so already, I would suggest you immediately:

      – Ask them for a written copy of their financial assistance policy. If they are a non-profit hospital.they must provide this under new provisions of the Affordable Care Act. Even if they are a for-profit hospital you should be able to get this from them though they may not have the same obligation to provide that.

      – If you haven’t done so already, ask for an itemized bill so you can research whether there are errors or mistakes. This is not a simple thing to do, but you may be able to substantially reduce your balance if you were overbilled. I wrote about that in this article: Big Hospital Bill? Negotiate!

      – Ask to meet with a representative of the hospital billing department in person. Be prepared with information about your income and expenses, as well as your application for financial assistance (if you believe you qualify) and any questions/disputes you have about how much you were billed.

      Hopefully by being proactive you can come to an agreement that works for both you and the hospital. If not, then you may have to consider getting a personal loan to pay off the balance to avoid collections.

  • Jon D.

    If my credit card company emials me offering me a paymnet arrangement, because I fell behind, and I accept and make paymnets as agreed ..Can they charge off that account anyway? I made arrangemnets with Citi and made first paymnet under agreemnet and two days later they charged off account..is that possible?

    • Gerri Detweiler

      Jon –

      My guess it that this is likely a matter of an automated system not catching the arrangement you made – or perhaps not properly recording the payment. I’d suggest you go up the chain. Since you have a confirmation of the agreement and your payment, I’d suggest you call and ask to speak to a supervisor. If that doesn’t work, the come back and comment and we’ll see if we can dig up a corporate contact.

  • Toni

    After a recent review of my credit report, I saw an entry from a Collection Agency and a date of 11/15/2012. No dollar amount. At what point does an entry like this turn into a more detailed entry with number of days deliquent and dollar amount due? I am preparing to send the collection agency a Debt Validation letter because I have no idea who I am in debt to nor have I been contacted by anybody requesting money. I’ve worked hard all my life to pay my bills and maintain impeccable credit and now it appears I may be in for a frustrating battle. Thank you for your response.

  • Greg

    Dear Gerri,
    I have been making small payments to a debt collection agency. I have been making them via my auto bill pay account via my bank. They have been depositing the money but still reported me to the credit bureaus.

    This is the 2nd debt collector for this account. The first also collected my payments but didn’t report me to the credit bureaus. They did however sell the debt to a second collecter. The last letter received said they were returning the debt to the hospital that was the original collecter.

    I did not negotiate with the debt collector but simply started sending them what I could afford on a monthly basis. I was under the impression that as long as I was making payments they could not report me to the credit bureaus. My credit score was in the 770 range before this, as all of my credit cards are paid off or current. Now my score is in the 680 range due to the one unpaid medical bill.

    • Gerri Detweiler

      Greg,

      Unfortunately that’s a common myth. Medical collections can and usually are reported and they affect your credit like any other collection account. I wrote about that in this story, Four Medical Bill Myths That Can Cost You Dearly.

      You may want to check out the Medical Debt Responsibility Act and let your legislators know what your view is on that issue.

  • Gina V

    What can one do if they have a credit card debt.. (company already cancelled the card) that has a high balance say 12,000 and have been in hardship program with the credit card company for 2 years now.. making the said agreed payments. Now that the program is up.. they are asking for more money per month for a permanent hardship program lasting for 4 yrs. However, since the new monthly amount is over 100.00 more than the current program, and the person cannot afford that, what can one do at this point? The credit card company will not make this affordable for this family. If they could pay the additional 100 per month, then it would have been done all along.. The person has tried to paid this debt for the past 2 years making payments every month and only to still have past 180 days reporting on credit report, (because of the past due balance being over 1,000.. ) is what they told the person.. but no agreements that are affordable can seem to be made between the 2 parties.. Is there other options?

    • http://www.credit.com Gerri

      Gina – Unfortunately the creditor isn’t required to give you a payment plan they can afford, and for whatever reason, they have changed their policies about hardship programs. If you can’t work out a settlement arrangement directly with the creditor than I recommend you contact a credit counseling agency. They work out payment arrangements with creditors and can help you figure out whether what you are able to pay is feasible. If they can’t help you then you’ll have to look at other alternatives such as debt settlement or bankruptcy. You can learn more about how credit counseling works here and you can read about other debt relief options here.

  • rachel

    I had an issue with a creditor, I hadn’t realized i had a Judgement against myself until I was in the process of purchasing a home…long story short get what ever arrangements in writting keep proof of all payments and written communication, Find out who the original creditor ,keep in contact with them if they hired a collection agency if ur ready to make arrangements . After I paid of the debt. I had a hard time of them sending me proof and a release of judgement form for the courts to clear my file .. I kept on them on a daily and i mean daily basis , you would of thought I worked for the credit agency lol 2 to 3 times a day , I contacted the original debtor to give them notice of my payment and arrangement , they also never contacted them of our arrangement…and of my payments… so beware who u decide to work with and be diligient,after you pay off ur debt you still have a lot of work ahead of you to get them to honor thier word <I had to give them my laywers # as a threat.

  • Joline

    I have a question about a collector calling me. I did a bank ruptcy in 2006 and just this last month i had someone contact me about a loan on my credit report that shows still active. They are telling me the company that i got loan from wrote it off, but because of a INS the company had they paid the loan off and now the INS is coming after me. It dont sound right and im not sure what to do. Any sugestions?

  • Desiree

    I wish I would’ve read all of this helpful information earlier. I have several collection accounts on my credit report & I desperately want to improve my credit, so I decided to start contacting each collection agency & offer settlement amounts. As of now, I have paid a little over $2,000 in settlements & now I’m afraid that all of that money has been thrown down the drain. The worse part is that I didn’t request the CA send me anything in writing stating the collection was settled or it be removed from my credit report! I’m a single mother trying to get my credit back on the right track & I feel like I just totally screwed myself over :(

    • Gerri Detweiler

      Hopefully they will honor the settlement agreement and you can put these behind you. But do try to keep any records you have while it’s still fresh – for example, a copy of the checks or bank statements showing what you paid. Keep those indefinitely.

      It’s not always a total waste to pay a collection account. It hopefully will prevent you from being sued for these debts.

      Hang in there.

  • SSR

    Hi,

    I had to move out of an apartment after giving a month’s notice.
    Howvever, the apartment management insisited that they could not find another renter and charged me with 3 months rent. Despite trying to reason with them, they withheld the security deposit amount (1.5 month rent-$2.3k), they charged me unreasonable amounts ($4k) and handed over my details to a collection agency. This happened in 2010 and I chose to ignore the collection agency, as I was trying to battle it out with the apartment management.

    I want to know, do I go back to apartment management to try to strike a deal to close the collection OR do I have to speak to the collection agency. If I have to speak to the collection agency, what kind of negotiation options do I have?

    The collection agency has already dinged my credit in 2011 and none from the apartment management. Will closing the collection impact my credit in a positive note, as I’m planning to buy a home soon.

    Thanks!

    • Gerri Detweiler

      You’ll probably have to settle with the collection agency now. You can try going back to the apartment management but they may want more than the collection agency will!

      Paying off or settling the collection account will not help your credit scores. However, a mortgage lender may require it as a condition before they will give you a loan. (Ask your loan officer – it depends on the loan program.)

  • Pingback: The Ultimate Guide to Credit Scores | Best Credit Repair

  • vkat

    Hi Gerri,
    i am surgical resident in a hospital and had 2 medical bills for 81.00 dollars and 9.00 dollars. My hospital insurance was supposed to pay 100 percent. i was sent a bill for those 2 amounts which i spoke with the hospital administrator and they said they will take care of it. long story short it went to a collection agency and reported in my credit bureau. how should i proceed from here? other than these two i have no issues on my credit report. always pay the credit card balances in full every month and paid off almost 3/4 of my student loans and make ontime payments on my car. i do not have a problem paying off the 90 dollars and i will. paying off the total 90 dollars will it help my credit score or it wont make any difference. thank you

  • Pingback: The 7 Biggest Questions About Debt Collections & Your Credit ← WORLD NEWS

  • Kenngee

    Dear Gerri,

    I have a question regarding credit card debt settlement. I have 6 year old delinquent credit card debt that was sold to a debt collector in 2009. I 2010 I made an arrangement to pay $250.00 monthly. After 2 years of timely payments the balance has barely buged due to a high interest rate. I have recently hired an attorney to negotiate a settlement. The original balance was about $12500, after debt collector fees balance was about $18000. I have paid over $5000 in monthly payments. The attorney was able to negotiate a settlement of $3725.10. If I accept this settlement offer will my credit scores plummet? I have no other deliquencies and my experian score is 680 as of 7/25.

    • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

      Kenngee – Once the settlement updates to your credit report, your score may drop a bit due to the freshness of resolving a collection account (backwards I know – it should improve when you are taking responsibility for an old unpaid debt). With a 680, and no other negatives, it should not plummet. I assume you have ongoing positive trade lines.

      One element you will be improving will be your debt to income ratio, as you will not have an outstanding balance reporting owed.

      Do you have credit goals in the near future (auto loan, refi, home purchase)?

  • http://www.credit.com/ Credit.com Credit Experts

    Donnie – there is no difference between settling a collection and paying it in full. Neither will improve your credit score but it will help keep the collections from making things worse if the collector decided to sue and file a judgment against you, for example.

    If you plan on buying a house, lenders will most likely require you to address any outstanding collections or unpaid debts so settling the accounts was a wise decision. For more on this issue, this resource should help: http://blog.credit.com/2013/09/qualifying-for-a-home-loan/

    As far as getting a credit card again, this is also possible but it may take some time. If your credit scores are low, you may need to start with a secured credit card — at least until your credit improves enough to qualify for a traditional card.

  • http://www.Credit.com/ Gerri Detweiler

    Are these federal student loans? If so then you may be better off rehabilitating the loans rather than paying them off with a more expensive personal loan.

  • http://www.Credit.com/ Gerri Detweiler

    We have written an article on that topic:
    How to Rent With Bad Credit Hopefully it will help answer your questions, but if not let us know.

    Also, if you don’t already have your free credit score from us, I recommend you get it because you will also get an action plan for your credit.

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