Asking Creditors to Remove Settled Debts From Credit Reports

Having accounts in collections or charge-offs on your credit report can really do a number on your credit score. But even after you’ve paid off a settled debt, the negative mark can stick around for years, keeping your credit score low. Is there anything you can do to get these paid-off collections accounts removed from your credit report? Let’s take a look.

What is a Settled Debt?

When an account goes to collections, it means you failed to make payments on a debt as originally agreed with the creditor. The creditor writes it off as a loss and sells it to a collection agency at a steep discount. For example, if you stop making payments on a $1,000 credit card balance, the bank writes off the $1,000 as a loss. They then sell that debt to a collection agency for maybe $200.

The collection agency then contacts you and offers to let you settle the debt – meaning you can pay less than the full balance owed. Let’s say they agree to let you pay $500 to consider the debt settled. This is known as a settled account or settled debt.

How Settled Debts Impact Your Credit

When an account goes to collections, it damages your credit in a few ways:

• Your payment history – which makes up 35% of your credit score – takes a hit from the missed payments.
• It lowers your credit utilization ratio since you now have less available credit.
• The collection account itself shows up and dings your score.

Even after you pay off a settled collection account, it can stick around on your report for up to 7 years from the date it first went delinquent. This is because the Fair Credit Reporting Act (FCRA) requires credit bureaus to report accurate information – and the fact that the account went to collections is accurate information.

How to Remove Settled Collections Accounts

Just because settled accounts are allowed to stay on your report doesn’t mean you can’t try to get them removed. Here are some strategies:

Goodwill Letters

You can mail goodwill letters to the creditor or collection agency asking them to remove the settled account as a gesture of goodwill. Be polite and explain how the negative mark is impacting you. Some key tips for goodwill letters:

• Address them to a specific person (call to find out)
• Mention how long you’ve been a customer if applicable
• Explain how the mark is hurting your financial life
• Only send 1 letter per agency and wait 30-45 days for a response

Unfortunately creditors and collectors are not obligated to remove accounts in response to goodwill letters. But it doesn’t hurt to try and many people have success, so it’s worth a shot.

Pay-for-Delete

This strategy involves negotiating with the collection agency to get the negative item removed in exchange for payment. Many agencies will reject this type of offer out of hand, but some are open to it. When negotiating a pay-for-delete deal:

• Get any agreement for removal in writing before paying
• Make sure the letter states the account will be deleted from all 3 credit bureaus
• Only pay once the deletion is confirmed by reviewing your credit report

Pay-for-delete deals can be tricky to navigate, but can help remove collections accounts if done properly.

Disputes

You can dispute settled accounts with the credit bureaus by submitting a dispute letter. The FCRA requires the bureaus to investigate any dispute within 30 days. When writing dispute letters:

• Dispute online or via certified mail
• Note the account name, number, and why you dispute it
• Request the account be removed or marked as disputed
• Follow up if it isn’t removed after 30 days

The creditor or collector then has to prove the account’s validity. If they can’t, it must be deleted. Disputes may not always work, but are a free option to try removing settled collections.

Strategies to Rebuild Credit After Settled Accounts

Removing settled debts is an important step, but you also need to rebuild your credit after collections damage it. Here are some tips:

Become an Authorized User

Ask a friend or family member with good credit to add you as an authorized user on their credit card. Their positive payment history will start to appear on your credit report and improve your score.

Open a Secured Card

Secured cards require a refundable security deposit, allowing you to build credit even with bad credit or no credit history. Use the card responsibly by paying on time and keeping balances low.

Limit New Credit Applications

Each credit application causes a hard inquiry on your report that can ding your score a few points. Limit applications to no more than one every six months while rebuilding credit.

Monitor Credit Reports

Review your credit reports regularly to watch your scores climb and catch any errors bringing them down. Monitoring helps you see your progress.

Rebuilding credit takes time after collections accounts damage your scores. But staying diligent to improve your credit health over time will help increase your scores.

The Bottom Line

Having settled accounts on your credit reports can put a damper on your credit scores and make it harder to get approved for financing. But there are strategies for removing paid and unpaid collections accounts if you’re willing to put in the work.

Disputes, goodwill letters, and pay-for-delete deals are some of the main options to try. Combining these with rebuilding credit tactics can help you recover from the black mark of collections.

It takes persistence, but removing these negative items is possible with some time and effort. Don’t let settled debts continue haunting your credit report – take action to delete them so you can get approved and rebuild your credit.

 

References

[1] https://alleviatefinancial.com/debt-settlement/how-to-remove-settled-accounts-from-a-credit-report/

[2] https://attorney-newyork.com/2022/07/11/how-to-remove-settled-accounts-from-credit-reports/

[3] https://www.moneylion.com/learn/how-to-remove-settled-accounts-from-credit-report/

[4] https://www.tateesq.com/learn/remove-settled-accounts-credit-report

[5] https://wallethub.com/answers/cs/how-to-remove-settled-accounts-from-credit-report-2140806860/

[6] https://www.federallawyers.com/debt-relief/how-to-remove-settled-accounts-from-credit-reports/