Managing Debt

Can a Debt Collector Remove Data From Your Credit Report?

Comments 12 Comments

Common misconception: Paying off a collections account improves your credit score.

Paid or unpaid, having a collections account on your credit report is a negative. It shows you failed to pay a bill on time, so you’re a higher lending risk than someone who doesn’t have a collections account on his or her report. It doesn’t matter if you pay the bill eventually — as far as credit scores are concerned, the problem lies in the fact that you didn’t pay it when it came due.

If it’s bad for your credit whether or not the account gets paid, what’s the point in paying it? You want to satisfy the debt and put it behind you, and the creditor or debt collector wants to get paid — it sounds like a perfect situation for negotiation, right?

That’s what one of our readers wondered:

“Can I tell a creditor that cashing my check constitutes agreeing to delete (the) account from my credit report?”

Unfortunately, that’s probably not going to work. In fact, it could backfire.

Michael Bovee, the creator of the Consumer Recovery Network and a 20-year veteran of the debt and credit industry, said that sort of negotiating might have worked a long time ago, but debt collectors aren’t going to go for it now. Collectors rely on data from the credit reporting agencies in order to determine which debts are most collectable, and the credit reporting agencies don’t want collectors to delete accurate information from credit reports, Bovee said.

He said he saw it work like this: The consumer says to the collector, “I want you to take this debt off my credit report when I pay it.” To which the collector says, “I can’t do that, but once you pay it, why don’t you dispute the account to the credit bureau, and then we won’t respond.” By the collector not responding to the dispute, the credit bureau would have to remove the trade line.

About 10 to 15 years ago, Bovee saw consumers regularly succeeding with this tactic, and some online forums still cite this “pay-to-delete” tactic as a way to deal with collections accounts.

“Debt collectors today are not doing it because they don’t want to hurt their relationship with the credit reporting agencies,” Bovee said.

Why Bother Paying?

Getting back to an earlier point: Why pay at all? Well, it depends on what your credit goals are. Say you want to get a mortgage. The lender will pull your credit reports, see a collections account with a balance and factor that into your overall debt-to-income ratio. They may not want to extend you credit if you already owe someone else a lot of money.

And as far as bringing up the “I’ll pay you if you help me” idea with the collector, you may be hurting your chances of a debt settlement.

“You’ve indicated you want something,” Bovee said. “Now they’ve got leverage.” It’s a debt collector’s job to get you to pay, so if it seems like you’d be willing to pay to get the account to go away, maybe you’d be willing to pay more of what’s owed in order to lower your debt-to-income ratio.

Whenever you’re trying to deal with a collections account, the best thing to do is communicate with the other party. Make sure the debt is legitimate, belongs to you and still qualifies for collection before paying anyone.

More on Credit Reports and Credit Scores:

Image: iStock

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  • Reighn9

    What about creditors or debt collectors who place the collection note on your credit report when you satisfy the debt when you are first notified of it? They tell you the account is not in collection yet and will only be reported as paid, yet it’s reported as a collection and maybe paid. I’ve had this happen several times. I’ve gotten 2 of these removed, but one company kept putting it back on the report. These are accounts where I was never notified of being past due or sent to collection.

  • Jason Hall

    Debt to income is calculated on total monthly payments against income. Collections don’t report monthly payment amounts, just balances owed.

    Also, collection companies re-age the collection monthly to refresh the derogatory until it’s paid. After that, it begins to age off on its own.

    If you’re going to write an article on this subject I’d recommend getting your facts straight.

    • kel

      I have a repo from 2004 that is charged off and should have aged off my report, but new creditors keep buying the debt and extend it coming off my report now it 2018 coming off. Is this legal or disput.

    • http://www.avoidbk.com/ Jared Strauss

      Hi Jason, I believe the article is referring to the recent FHA guidelines that require non-medical collection accounts that are in excess of $1,000, or in aggregate of $2,000, to be resolved prior to qualifying.

      When consumers possess collections that exceed these thresholds, they are required to either pay, settle, or enter into a payment plan on these particular accounts.

      If a payment plan is entered into and at least 3 payments are made, the monthly payment that is associated with the arrangement is indeed calculated into the D to I.

      Also, collection accounts are only supposed to refresh the date last reported when the account is dormant, not the date of last activity or payment.

      Per the FTC, they are supposed to fall off 7 years and 180 days after the date of last service or the date when the account originally became delinquent, whichever is more recent.

      Making a payment, settling, or paying off an old collection account does not renew the 7-year credit reporting period.

      Please see: http://www.ftc.gov/policy/advisory-opinions/advisory-opinion-amason-02-15-00 for reference. Question 2 is where you want to look.

      • Jason Hall

        Jared,

        The article specifically states.. “Say you want to get a mortgage. The lender will pull your credit reports, see a collections account with a balance and factor that into your overall debt-to-income ratio.”

        It mentions nothing of FHA nor mentions anything of medical collections specifically. The article is general in nature and misleads consumers.

        I do however appreciate your current lender knowledge and sharing some good details. I’m sure if/when these comments from professionals are read it may shed some light into some unanswered questions.

        My background is in mortgage and more specifically credit. Entered the mortgage industry as a Sr. Loan Officer in 1998 and exited in 2010. Have been a credit consultant ever since. It just frustrates me when I read mis-information that is on a major website that reaches a lot of people.

    • Christine DiGangi

      The law says collection accounts may only be reported 7 years plus 180 days from the date the consumer first fell behind with the original creditor leading up to when the account was placed for collection, whether the debt is paid, unpaid or sold to a new collection agency. If an account is reported after that 7 years + 180-day time period, the consumer should dispute it.

      • Jason Hall

        Stating a fact about limitations of credit account reporting doesn’t address the fact that your article is incorrect. I don’t know why you’d post this.

        • Christine DiGangi

          On my reference to debt-to-income ratio: Paying the debt, even if you settle for less than it’s worth, means you no longer owe that balance, so it would no longer have a negative effect on your debt-to-income ratio. That’s desirable for the person looking to, say, apply for a mortgage. As Bovee mentions in that section of the article, if you make it apparent to a collector that you really want the account off your report because you’re trying to appear less risky to a lender, that collector may try harder to get you to pay more of what’s owed. You are correct that the collectors just report the balance owed — that’s why the sooner you pay the debt, the sooner you improve your overall debt load. As far as collectors re-aging the account: The debt can only be reported within statute of limitations I referenced in my previous comment, whether it was paid or unpaid. If it goes unpaid even after that time expires, it is no longer legal to report that debt to credit reporting agencies.

        • Christine DiGangi

          Hi, Jason.

          Thanks for your comments. Your note about debt-to-income ratios and how collection accounts are factored in could definitely warrant a follow-up story. In the interest of clarity and answering the question posed in the article headline, we didn’t want to dive into all of the details of how collections are factored into DTI so we intentionally kept it broad. There’s so many rabbit holes in collections on credit reports we could go down is would be tough to address them all in one article. That’s why it’s great to hear from commenters on what interests them in the piece.

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

    Did your entire bill go unpaid due to the bogus data billing, or just the portion that you dispute?

    Collection agencies can indeed report collection items separate from the original creditor.

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

    If you think the collection account is bogus and you’ve tried disputing it to no avail, your options are to talk with a consumer law attorney or file a complaint with the Consumer Financial Protection Bureau.

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