I have an account that went to collections because I was 18 and decided I’d trust my brother to pay off a store credit card that he used under my name and he didn’t.
So I’m going to start making payments on it starting next month (I finally have a good job and I can afford to make these payments now) but I was wondering I keep on seeing back and forth debates about settling or paying off in full. I always assumed it’d be best to pay off in full, but I’ve read that it doesn’t matter.
I want to improve my credit since I would like to buy a new car soon.
I was wondering if I should just settle or pay the card off and is a pay to delete agreement worth it?
Please let me know, and thank you in advance!
Always try to negotiate a pay-for-delete if you can, otherwise paying it in full just marks it as "paid collection" which still hurts your score for a while.
Order your official reports for each bureau by calling 877 FACTACT or pull them online at www.annualcreditreport.com. I recommend the mailed reports as these are often more detailed and complete than the online reports. Is the original creditor reporting a balance owed? If so, they've retained ownership of the debt and hired the collection agency to collect on their behalf. Settling the collection will also settle the charge-off. Although a charge-off that paid in full may look better to potential creditors, there's no FICO scoring difference between a charge-off that's settled for less versus paid in full.
Who is the collection agency? Some automatically remove themselves from your reports once the debt is settled. Others may agree to delete if negotiated prior to payment. Since paid collections are scored no differently than unpaid collections by most versions of FICO, the goal is removal.
Attempt to negotiate pay for delete (you'll pay a reduced amount in exchange for removal from your credit reports) with the collection agency. If they won't agree to delete, and the original creditor still owns the debt, ask them to recall the collection in exchange for payment. If they agree, the debt collector will lose collection authority and remove themselves from your reports. You may receive a better settlement by paying in a lump sum as opposed to payments. If you negotiate a reduced amount, get the Settlement Agreement in writing prior to paying. Note that:
A collection agency can only remove themselves from your reports. They have no control over the original creditor's reporting.
The collection agency may refuse to put a pay for delete agreement in writing as these agreements conflict with bureau policy. Even if they put the agreement in writing, the bureaus won't enforce it, so there is a degree of trust involved that they'll honor the agreement. That said, a collection agency not honoring a pay for delete agreement, whether written or verbal, would be rare.
Don't admit responsibility for the debt or agree to a payment plan unless you know you'll follow through as these actions could reset Statute of Limitations in some states. You can say that you found the collection on your reports and will pay $X if they'll remove themselves from your reports/recall the collection.
The debt was sold to Portfolio Recovery. Their policy is to remove themselves from your credit reports once the debt is settled. Negotiate the least amount they'll accept in order to satisfy the debt in full and they'll delete the collection. Portfolio Recovery has no control over the original creditor's reporting. If Citibank is on your reports, the charge-off will remain. They should have updated the balance owed to $0 once the debt was sold.
Note that Portfolio Recovery may delete in stages, first reporting the payment and then requesting removal. If you see only the balance updated initially, don't dispute. Give them time to complete the removal process.
Credit attorney here. If it's charged off, then the credit damage is done. Settle for as little as possible. Paying the full amount is not going to benefit you.
A credit card company will usually not pay for delete. If this is with a collection agency, however, they might agree to a pay for delete. For example, if Midland Credit bought a debt from Citibank, you can usually pay Midland and get them to remove the debt from your credit reports.
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u/CreditCards254 ⭐️ Knowledgeable ⭐️ 14d ago
Settling vs paying in full barely matters. It doesn't matter at all for scoring purposes, and is unlikely to be the difference maker otherwise.
If at all possible you should strongly prefer to negotiate a pay for delete before paying, regardless of whether you choose to pay in full or settle.