You’re ready to apply for a loan, but there’s one problem: A collection account is tarnishing your credit report. Although this blemish will fall off naturally in several years, you don’t want to wait.
One loophole touted across debt advice forums and websites is the “pay for delete” method. The concept: You offer the collector immediate payment. In exchange, the collector gets the account deleted from your credit report.
But does that really work?
“Depending on who you ask, they’ll either tell you pay for delete doesn’t exist, or they’ll tell you, ‘Not only does it exist, but it’s worked for me,’ ” says credit expert John Ulzheimer. “But anyone who suggests it’s a strategy that’s going to work every single time is absolutely incorrect.”
Although it’s not illegal, we don’t endorse pay for delete, nor do the experts interviewed for this article. But, since it happens, here’s what to know.
It will work only in certain circumstances
If you’re thinking of calling up your bank or original creditor and asking it to delete a charged off account from your credit reports, it won’t work.
“Pay for delete is something that is only relevant in the world of third-party collection,” Ulzheimer says.
So, for credit card debt, it’s not the bank that issued your card (Citi, Wells Fargo, Bank of America, etc.) that you’ll be dealing with, but the third-party collector who bought your debt.
The credit bureaus frown upon it
The standards that govern the credit industry, as well as the agreements between collectors and the bureaus are clear, Ulzheimer says: Accurate information (such as debts you really owe) must not be removed from credit reports until the Fair Credit Reporting Act (FCRA) says it’s time. For collection accounts, that’s after seven years (beginning 180 days after the first delinquency that led to the original creditor charging off the account).
And there’s a good reason for that – if accurate information is removed, the value of credit reports as a risk-assessment tool disintegrates.
“It’s absolutely not something that the credit industry acknowledges as a valid process,” Ulzheimer says.
If the bureaus learn a collection agency is doing pay for deletes, they could revoke its access to credit reports.
You have to negotiate
So how does pay for delete happen, if the credit bureaus don’t want it to? It happens if the collection agency agrees to give the bureaus the impression that information about your account is inaccurate — because inaccurate accounts must be removed (according to the FCRA).
Jared Strauss, a former debt collector and now the owner of debt settlement company Debt Relief A’ La Carte, outlines the inner workings of the pay-for-delete process:
1. Financial preparation
Pay for delete generally works only for those ready to pay immediately.
“If you’re not in a position to execute your payment immediately, wait to make your approach until you are,” Strauss says.
2. A verbal request
Although there are many “pay-for-delete request” sample letters available online, Strauss says a phone call is more effective.
“Psychologically, the way collectors look at letters is, if you took that much time to formally approach them, they know you really care, that you really desire resolution” he says. “Their job is to collect as much money as possible from you, so they’re going to take advantage of that psychology.”
Calling can also utilize the collector’s desire to settle things quickly, Strauss says. Collectors work in a fast-paced environment. If they can put a caller on hold and ask their manager for authority to say yes to a request because that caller is going to pay immediately, success is more likely.
3. A suggestion and a counter offer
Once the debtor and collector agree on a payment amount, the debtor asks if it would be possible, after the payment is made, to have the record deleted from their credit reports
Many collectors will say such an arrangement is against their policy.
“The reason they take that position is that they’re afraid they’ll jeopardize their credibility with the credit bureaus,” he says.
This is where a debtor can float the idea of deleting an account within the context of a dispute.
According to Strauss, that might entail saying something like “I understand that you normally don’t delete information, but what if I’m disputing the debt with you? Would that give you good cause to remove it from my credit report if I agree to just take care it?”
After the debtor pays, the collector can then contact the bureaus and say the account must be deleted, based on it being inaccurate.
“If [the deletion] is not tied to payment, but to a dispute, that gives the collector an out. Integrity is no longer an issue,” Strauss says.
4. The written agreement
Even though the negotiation started by phone, a written agreement is necessary.
The collector will generally push you to let them fax or email the letter, so they can close the deal on the same call, Strauss says.
5. Another way
“For some agencies, there’s nothing you can say that will make them budge,” Strauss says.
In such cases, a more indirect variation of pay for delete could come into play. If the debtor sees any piece of information about the account’s trade line that could be considered inaccurate, they can pay off or settle the account, wait a couple months (so that the collector can rest assured that the payment has gone through) and then dispute that aspect of the account with the bureaus. The bureaus will then attempt to verify the account with the collector. If the account is paid, the debt collector has less of an interest in researching the matter and responding to the bureaus.
“The collector’s rationale is, ‘Do I want to spend time, money, resources, put employees on this for something I really don’t care about because I’ve already been paid?'” Strauss says.
Debt that has not been verified as accurate has to come off the reports, making this technique a roundabout pay for delete.
Credit scars might remain
Even if the collection account gets deleted, all the damage might not be undone. When consumer debt, such as credit card debt, goes into collections, it often results in two notations on a credit report – one from the original creditor when it charges off the debt from its books and a second from the collector when the collection account is opened. Collectors have no control over the former, meaning pay for delete won’t scrub it from your report.
That’s why pay for delete works best for things that don’t get reported by an original lender, Strauss says: utility bills, cellphone bills, leases and medical bills.
Still, pay for delete has its advantages with card debt, Strauss says: If the collection account gets deleted, at least it won’t be weighted into credit scoring algorithms.
You’re in a tough spot if the collector doesn’t follow through
If you get a pay-for-delete agreement in writing from a collector, and the collector doesn’t get the account removed, you may have recourse.
“But it’s heavy lifting,” Ulzheimer says.
Collection agencies are bound by the Fair Debt Collection Practices Act, which prevents them from lying to consumers or using deceptive practices to collect. So if a collector makes a pay-for-delete offer knowing they’re not going to follow through or knowing they can’t follow through, but still collects money, that could be considered an FDCPA violation, especially if you have a written agreement.
“Then you’ve got two choices,” Ulzheimer says. “You can live with it. Or you could pursue it in court under the FDCPA. A lot of people might not have the stomach for something like that.”
While that might not be much comfort, at the end of the day, you’ve paid off your debt. It will eventually disappear from your reports, and, in the meantime, a paid-off debt looks better to lenders than an unpaid collection account.
“You’ve put yourself in the best position you can,” Ulzheimer says. “You’ve made the best of a bad situation.”