Working with the original creditor, rather than dealing with debt collectors, can be beneficial. Often, the original creditor will offer a more reasonable payment option, reduce the balance on your original loan or even stop interest from accruing on the loan balance altogether.
Unfortunately, you're still obligated to pay a debt even if the original creditor sells it to a collection agency. As long as you legally consented to repay your loan in the first place, it doesn't matter who owns it. You may be able to pay less than you actually owe, though.
If the original creditor, such as a credit card issuer or mortgage lender, is handling the debt collection, then your payments will go to the creditor. But if the original creditor hires a debt collector or sells your debt to a debt collector, you'll send payments to the debt collector.
In most cases, the original creditor will give you more generous terms for repayment than any debt collector will. The original creditor will also be happy to recoup the debt that they extended to you, at least most of the time. Paying the original creditor can also help your credit score in many cases.
If you're ready to negotiate on a debt, you'll probably be better off talking to the creditor, not a collection agency. This is because the creditor has more discretion and flexibility in negotiating with you, and might see you as a former and possibly future customer.
Making a payment on the debt will likely reset the statute of limitations — which is disastrous. If the collection agency can't show ownership of the debt. Frequently, the sale of a debt from a creditor to a collector is sloppy. A collection agency hounding you may not be able to show they actually own your debt.
Generally speaking, having a debt listed as paid in full on your credit reports sends a more positive signal to lenders than having one or more debts listed as settled. Payment history accounts for 35% of your FICO credit score, so the fewer negative marks you have—such as late payments or settled debts—the better.
Collections remain on your credit report for seven years past the date of delinquency. In the newest versions of FICO® and VantageScore®, paid collections don't hurt your score but unpaid collections do.
Getting Collectors to Remove Negative Information
The collection agency might tell you that they can't make that decision—only the original creditor can remove the information. Ask for the name and phone number of the person with the original creditor who has the authority to make this decision.
Your overall credit profile
As the CFPB notes, if your score was 780 before you received the collection account, paying it off could raise your score by a full 105–125 points.
Understanding Your Debt Payoff Options
While it's best to pay off debt that's in collections rather than settling it, both options are far more beneficial than ignoring the debt completely. You should give yourself credit for reaching the point at which you're ready to face your debt and get rid of it.
Once you and the debt collector have reached a written agreement for paying off the debt, you'll make your payment. The most secure way to make a payment to a debt collection agency is by sending a check through the mail with a return receipt. This will prove that the check was accepted by the collection agency.
When you're negotiating with a creditor, try to settle your debt for 50% or less, which is a realistic goal based on creditors' history with debt settlement. If you owe $3,000, shoot for a settlement of up to $1,500.
Yes, it is possible to have a credit score of at least 700 with a collections remark on your credit report, however it is not a common situation. It depends on several contributing factors such as: differences in the scoring models being used.
If you have a collection account that's less than seven years old, you should still pay it off if it's within the statute of limitations. First, a creditor can bring legal action against you, including garnishing your salary or your bank account, at least until the statute of limitations expires.
Unfortunately, your credit score won't increase if you pay off a collection account because the item won't be taken off your credit report. It will show up as “paid” instead of “unpaid,” which might positively influence a lender's opinion.
A paid collection account will not disappear from your credit history just because you've paid it off. It will stay there until the statute of limitations has passed, which is at least seven years in most cases. You cannot have it removed by contacting the credit bureaus and requesting it be removed.
The main ways to erase items in your credit history are filing a credit dispute, requesting a goodwill adjustment, negotiating pay for delete, or hiring a credit repair company. You can also stop using credit and wait for your credit history to be wiped clean automatically, which will usually happen after 7–10 years.
The original creditor can't continue to report a balance due if it has sold the account to a collections agency. However, it can report a charge off, which remains on your credit report for seven years, even if you pay off the debt—with the original creditor or via a collections agency.
After seven years, most collections accounts should fall off your credit report—so if you're closing in on seven years, just hang on. The impact on your credit score is probably already lessened. After the collection account disappears, your credit score might improve.
If your misstep happened because of unfortunate circumstances like a personal emergency or a technical error, try writing a goodwill letter to ask the creditor to consider removing it. The creditor or collection agency may ask the credit bureaus to remove the negative mark.
Contrary to what many consumers think, paying off an account that's gone to collections will not improve your credit score. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law's editorial disclosure for more information.
There are 3 ways to remove collections without paying: 1) Write and mail a Goodwill letter asking for forgiveness, 2) study the FCRA and FDCPA and craft dispute letters to challenge the collection, and 3) Have a collections removal expert delete it for you.
The first step to stopping debt collectors from calling you is telling them the 11-word phrase - “Please cease and desist all calls and contact with me, immediately.”
You can ask the current creditor — either the original creditor or a debt collector — for what's called a “goodwill deletion.” Write the collector a letter explaining your circumstances and why you would like the debt removed, such as if you're about to apply for a mortgage.