I am so upset right now! I just applied for a mortgage and was turned down because of 3 medical collection accounts on my credit. All of the accounts are from the same collection agency. The worst part is that I didn’t even know these accounts existed. They are from an ER visit last year and I gave my insurance information to the hospital when I was treated. I called my insurance company and they told me that I had a deductible on some of the tests which I still owe. But the hospital never even let me know that I still owed a bill! They just put collection accounts on my credit and destroyed my credit. I read online that I should try to work out a “pay for delete” deal with the collection agency but when I called the collection agency they said no. What can I do?”
The scenario above is a very common occurrence and, as you can imagine, it can be truly heart breaking to find out you do not qualify for a mortgage due in large part to collection accounts you never even knew existed. While it is never a bad idea to settle a legitimate debt, the reality is that simply settling the debt will not do much to help your credit scores. The balance of a collection account is not the primary factor which lowers a person’s credit scores, but rather it is the fact that the delinquency occurred in the first place. Settling an account does not erase the history of the delinquency. Enter the “pay for delete” strategy.
Is “pay for delete” real? Can it help your credit? Plus, what is a “pay for delete” in the first place? Let’s take a look.
What Is a “Pay for Delete” Deal?
The term “pay for delete” is used to describe the action of paying off a collection account in order for the account to be deleted from your credit reports. First of all, it is true that “pay for delete” deals actually exist. However, they are extremely difficult to obtain and even harder to uphold if the collection agency decides not to honor the agreement after receiving payment.
Why “Pay for Delete” Deals Are So Rare
“Pay for delete” deals are not illegal. That is a myth, regardless of where you may have heard it. However, “pay for delete” deals are frowned upon very heavily by the credit reporting agencies themselves – Equifax, Trans Union, and Experian. Collection agencies depend heavily upon the ability to report to the credit bureaus in order to remain profitable. After all, the #1 factor which motivates consumers to pay collection agencies is the fact that a collection account is damaging their credit scores. In order to report accounts to the credit bureaus, collection agencies must sign service agreements. Most of these agreements have language which directly warns collection agencies not to delete paid accounts from consumer credit reports. If a collection agency is caught deleting paid accounts from credit reports then they could actually lose their ability to report accounts to the credit bureaus.
Why “Pay for Delete” Deals Are Hard to Enforce
Sometimes collection agents will agree to a “pay for delete” deal in an effort to collect payment from a consumer. Collection agents work on commission and, let’s face it, sometimes they are manipulative and even dishonest in their debt collection attempts. Many people who had a collection agent agree to a “pay for delete” settlement have found that the collection account remained on the credit report after payment was received. If you do negotiate a “pay for delete” deal with a collection agency, then it is absolutely crucial to get the agreement in writing before you release any funds for payment.
Sadly, even if you receive the agreement in writing the collection agency may not honor the agreement. If the collection agency chooses to go back on their word they you have little recourse with the credit bureaus either. The credit bureaus will not likely honor a “pay for delete” agreement, even in writing, since you are asking for accurate information to be removed from your credit reports. (If you are requesting for an inaccurate account to be deleted from your credit then that is a different story.)
There is nothing wrong with trying to negotiate a "pay for delete" settlement agreement with a collection agency, but if you strike out due to one of the reasons above remember that all hope is not lost. Time is your ally where negative credit history is concerned. The more distance you put between yourself and the occurrence of the delinquency on your credit report, the better. Yes, collection accounts can harm your scores for 7 years from the date of default on the original account but the account will affect your scores less and less as time passes. Opening secured credit card accounts (and managing them correctly) will not erase negative credit history, but it can be a step in the right direction for your credit as well.
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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.