Collection agencies are for-profit businesses. Some collectors will call incessantly, while others will offer a deal to try and convince someone to pay.
Deals can range from small discounts on the amount owed all the way to removing an item permanently from the credit report. The latter is what is known as ‘Pay for Delete.’ Before making calls to collectors, however, it might be wise to reach out to a reputable credit repair company like The Phenix Group first to see if they can help.
Collections and Credit Reports
To fully understand how Pay for Delete works, we need to explain how collection accounts on credit reports work. When any type of credit account is opened, such as a credit card or auto loan, the financial institution begins reporting the status of that account to the credit reporting bureaus.
If payments aren’t made, the term ‘default’ may arise. What are defaults? Defaulting on a loan or credit agreement means you stop making payments.
When a borrower defaults, debts are often sold to collection agencies. In some cases, an item may be sent to a collector without having an initial credit account. Situations such as neglecting to pay for damages after moving out of an apartment can lead to a collections account with no related credit account.
An active collections account on a credit report can easily drop a credit score by fifty points or more. Given that the average score for loan approval is around 650, those fifty points carry a lot of weight.
The damage done to a person’s credit is a bill collector’s most potent tool. They will be sure to remind debtors that the collections account is still listed on their credit report. This leads many individuals to pay the amount due in order to have the item removed.
There is a problem here, though–even paid collections accounts are not removed from a credit report unless they are more than seven years old; they simply get marked as ‘paid and closed.’ While paying does improve a credit score, the collection is still listed and lenders might still ask about it before granting a loan.
How Does Pay For Delete Work?
Pay for Delete as a practice is frowned upon in the world of credit. Legitimate debts aren’t supposed to be removed from credit reports. What happens during a Pay for Delete offer is this: the collector offers a deal to the debtor, the debtor pays the amount in full, and the bill collector promises to delete the record from the credit report.
The issue is that if the debt is legitimate, it is technically illegal to remove it. Therefore, what the collections agencies do is send a letter to the credit bureaus that says, “We made a mistake, please remove this item from the client’s credit report.” If the credit reporting bureau finds out the debt is legitimate, both you and the collector may be in hot water.
One of the worst possible outcomes is when a collections agent makes a verbal promise to delete if someone pays, and then they don’t follow through. Now, the debtor is out the money, and the account is listed as ‘paid and closed’ but still showing. The debtor can’t go to the credit bureaus saying, “The collection agency said they would break the law, and then they didn’t.”
Credit Repair to the Rescue
As one can see, Pay for Delete is usually not a smart option. If a debt is illegitimate or has far exceeded the seven year period, it is better to call a credit repair company for assistance.
Licensed credit repair companies such as The Phenix Group understand the ins and outs of the credit reporting business. We can work with debtors, credit bureaus, and financial institutions to correct errors and set the record straight. Once negative items have been removed legitimately, credit scores will quickly improve, allowing loans to be approved, interest rates to be lowered, and borrowers to save thousands of dollars.