How does "settling" a collection debt affect credit?

[Xcobra]

I paid a collections debt around october of last year. Up until Jan of this year, it hasn't appeared on my credit report. Shrug...

 

[Nik]

I paid a collections debt around october of last year. Up until Jan of this year, it hasn't appeared on my credit report. Shrug...

That's why you include details in your written agreement with something like a guarantee of removal within 30 days of payment.

 

[SunnyD]

Let's say someone punches you really hard in the face. Does your face stop hurting the moment they remove their fist?

Depends. Am I unconscious or not?

 

[Eli]

Hmm. This thread is interesting.

I've paid off a couple of collections debts, settled for the amount they specified. Did I make a mistake by not getting things in writing, specifying that I want stuff removed from my credit report upon payment?

Based on this thread, my understanding is that you can request the account be removed completely from your report, rather than just being marked "Paid"?

 

[highland145]

Hmm. This thread is interesting.

I've paid off a couple of collections debts, settled for the amount they specified. Did I make a mistake by not getting things in writing, specifying that I want stuff removed from my credit report upon payment?

Based on this thread, my understanding is that you can request the account be removed completely from your report, rather than just being marked "Paid"?

The original lender can edit their record on your credit file. Will they? Ask. I wouldn't trust them or a collector without "in writing."

You don't "make a mistake" by paying what you owe. I would like to see "paid collection account" instead of deadbeat p.o.s.

EDIT: annualcreditreport.com find out for free. No score without $$

 

[DT4K]

The only good advice you will get from ATOT is right here:

Go ask this question on Creditboards.com!

A few of the replies may have some truth to them, but most of what you will see here in response to a credit related question will be incorrect information, stated as if it's fact.

 

[Nik]

The only good advice you will get from ATOT is right here:

Go ask this question on Creditboards.com!

A few of the replies may have some truth to them, but most of what you will see here in response to a credit related question will be incorrect information, stated as if it's fact.

Please quote everything in this thread that is wrong.

I'll wait.

 

[slag]

Not proud of this, but I've done it and its a hit on your score, but it will go away over time unless arranged differently beforehand.

Also, if you have a 20k debt and settle for 12k, the remaining 8k is considered taxable income and will bite you in the ass come tax time.

 

[Eli]

Not proud of this, but I've done it and its a hit on your score, but it will go away over time unless arranged differently beforehand.

Also, if you have a 20k debt and settle for 12k, the remaining 8k is considered taxable income and will bite you in the ass come tax time.

Hmm.. Interesting. Never heard of this. What kinda forms are involved? Do the debt owners automatically give them to you, or what?

 

[edro]

How does someone have 10k CC debt with 7k in cash just laying around?

Payday Advance loan @ 400% interest.

 

[SunnyD]

Hmm.. Interesting. Never heard of this. What kinda forms are involved? Do the debt owners automatically give them to you, or what?

It's obviously income. I knew about this as well, though I've never heard of anyone receiving any sort of form or whatnot (1099-something?). On a large enough amount it can definitely bite you in the ass.

Now my other question here is since it was mentioned - is it only the original creditor that can remove an entry from your credit report? Or is it whomever currently owns the debt?

 

[highland145]

The only good advice you will get from ATOT is right here:

Go ask this question on Creditboards.com!

A few of the replies may have some truth to them, but most of what you will see here in response to a credit related question will be incorrect information, stated as if it's fact.

Cool. 23 years in consumer finance and I have owned my own company for the last 5. Nothing to see here folks. Move along.

 

[Nik]

It's obviously income. I knew about this as well, though I've never heard of anyone receiving any sort of form or whatnot (1099-something?). On a large enough amount it can definitely bite you in the ass.

Now my other question here is since it was mentioned - is it only the original creditor that can remove an entry from your credit report? Or is it whomever currently owns the debt?

There will be two entries, not one. The original debt owner will show an entry of unpaid, unpaid, unpaid, sent to collections. Their record will stop changing (because they're no longer involved with your debt) but their entry will still be there. Then, the new company that bought your debt (often times for PENNIES on the dollar) will contact you notifying you that they now own your debt. After 30 days of non-payment, they can go to those same credit agencies and start reporting that you're not paying THEM either.

If you go to that collection agency and say "okay okay, I'll pay but you have to remove the mark on my credit history" and they agree and you both carry out your portion of the agreement, the original debtor's mark will still be there showing that you had a debt with them that was unpaid that they sold to a collections agency.

 

[Eli]

It's obviously income. I knew about this as well, though I've never heard of anyone receiving any sort of form or whatnot (1099-something?). On a large enough amount it can definitely bite you in the ass.

Now my other question here is since it was mentioned - is it only the original creditor that can remove an entry from your credit report? Or is it whomever currently owns the debt?

I would assume there has to be a form or something. I have no idea the deficit between what I've paid off and what the actual debt was.

Also, it's not always "income". For example, one of my Capital One cards went to collections. The account had a 500$ limit. Yet, they say I owed them 1400$, I assume because of all the late charges and over limit fees. Stupid. I settled for 900$.

And yes I'm aware that I'm to blame, but I still don't think it's fair that they run your bill up like that, then can call the difference income? What a crock of shit.

(I was jobless for a few months in late 2008, which is how I got into this mess).

 

[Nik]

I would assume there has to be a form or something. I have no idea the deficit between what I've paid off and what the actual debt was.

Also, it's not always "income". For example, one of my Capital One cards went to collections. The account had a 500$ limit. Yet, they say I owed them 1400$, I assume because of all the late charges and over limit fees. Stupid. I settled for 900$.

And yes I'm aware that I'm to blame, but I still don't think it's fair that they run your bill up like that, then can call the difference income? What a crock of shit.

(I was jobless for ~2 months in late 2008, which is how I got into this mess).

The moment a debt is sent to collections, that collection agency can tack on whatever they feel like and call it "fees" for service. When I was working for T-Mobile, I saw a woman's account that had been written off for $400 in overages and the collection agency immediately wanted $3000 from her.

I'm not sure if there are federal guidelines to protect consumers from predatory debt collection agencies like that, but it happens.

 

[highland145]

Not proud of this, but I've done it and its a hit on your score, but it will go away over time unless arranged differently beforehand.

Also, if you have a 20k debt and settle for 12k, the remaining 8k is considered taxable income and will bite you in the ass come tax time.

I wrote off 31K in 2009 and sent 1099-c to every last one. Hope to mess with their E.I.C. down the line.

EDIT: Federal law that I send them for over $600.00
EDITx2: I didn't send the under $600 on destitute, job loss or illness.

 

[SunnyD]

There will be two entries, not one. The original debt owner will show an entry of unpaid, unpaid, unpaid, sent to collections. Their record will stop changing (because they're no longer involved with your debt) but their entry will still be there. Then, the new company that bought your debt (often times for PENNIES on the dollar) will contact you notifying you that they now own your debt. After 30 days of non-payment, they can go to those same credit agencies and start reporting that you're not paying THEM either.

If you go to that collection agency and say "okay okay, I'll pay but you have to remove the mark on my credit history" and they agree and you both carry out your portion of the agreement, the original debtor's mark will still be there showing that you had a debt with them that was unpaid that they sold to a collections agency.

Ahh, okay. So basically unless you settle with the original creditor (is it still even possible to do if they're sold the account) and have them modify the record, you're just avoiding getting hit possibly twice for the same account?

 

[Eli]

The moment a debt is sent to collections, that collection agency can tack on whatever they feel like and call it "fees" for service. When I was working for T-Mobile, I saw a woman's account that had been written off for $400 in overages and the collection agency immediately wanted $3000 from her.

I'm not sure if there are federal guidelines to protect consumers from predatory debt collection agencies like that, but it happens.

I meant that Capital One said my balance was 1400$, which is also what carried over to the collection agency. I was able to settle with the collection agency for 900$.

I'm slowly getting myself out of this mess. I guess I should do some more research, I thought I was doing myself good by settling and paying them off. Is there more I could be doing? Is it going to be better to just pay off the full amount?

 

[Nik]

Ahh, okay. So basically unless you settle with the original creditor (is it still even possible to do if they're sold the account) and have them modify the record, you're just avoiding getting hit possibly twice for the same account?

You can always contact the original debtor and say "Hey, I paid so-and-so off, can you remove your note too?" and find out

 

[Eli]

You can always contact the original debtor and say "Hey, I paid so-and-so off, can you remove your note too?" and find out

How likely is that to work?

10%? 50%? -2%? lol

 

[Nik]

I meant that Capital One said my balance was 1400$, which is also what carried over to the collection agency. I was able to settle with the collection agency for 900$.

I'm slowly getting myself out of this mess. I guess I should do some more research, I thought I was doing myself good by settling and paying them off. Is there more I could be doing? Is it going to be better to just pay off the full amount?

Yes, there's more you can do. The very very FIRST thing you do is write the collection agency a letter AFTER they contact you. You state that they're not allowed to contact you any way other than in writing. They MUST adhere to this or you can take them to court and sue them and win all kinds of money (read: or threaten to do so if they don't wipe your debt clean in writing and remove the mark on your history ). In that same letter, you can ask them to prove that you owe them money. You'd be surprised how often data gets garbled during transfer. They could have a digit wrong on your social security number. They could have your address wrong like a wrong apartment number or wrong city or something. When you make this request for them to prove that you owe them, they have 30 days to respond to you. If they do not, you can take your proof (need to have sent registered letter so you can show dates) to the credit agencies and get it basically wiped clean from your record because they've abandoned your debt. If they have your address wrong or an SSN wrong or something wrong that identifies you, you can dispute it which can result in the debt wiped clean from your record.

There's lots of things to do initially that can end in "welp, THAT'S taken care of and I don't owe anything now " if you do it right.

If they actually do prove within 30 days that you do owe them, you can negotiate with them. Ask practical things like I can give you 40% right now and be done or I can pay you 60% over a longer period of time, etc.

One key thing to remember is that the credit agency might have bought your $1400 debt for $1000 (extremely unlikely) or $800 (less likely) or $500 or $300 or something ridiculous. The original debt owner just wants SOME money and the debt settled so they can move on. Debt collectors make a KILLING doing this. Even if you settle with the debt collector for $900, they're still making a TON of money. They're probably willing to take significantly less than $900, too. Just gotta ask -and, when you do come to an agreement, stick to it.

 

[Nik]

How likely is that to work?

10%? 50%? -2%? lol

I'm not sure on that one. Some places, like T-Mobile, do keep records and do keep checking up on their debtors even after writing them off. If you get written off by T-Mobile and have an outstanding balance with the debt collector, you can't have a T-Mobile account. However, if you pay off the debt collector, T-Mobile will allow you to have an account again (although it's a severely limited account but that's something else).

You just have to call and ask.

 

[HendrixFan]

I just skimmed through this thread, and there is some incorrect/incomplete information in here.

Any negative mark sits on your credit report for 7 years, and through those 7 years it weighs less over time. The 7 year clock starts when you make last payment. If you have a debt that is 5 years old, for example, and you pay it then it will still show as 120 days late, sold to collections, and then paid for 7 more years. The alternative is wait two more years and it disappears completely. Never pay a debt unless they agree to delete it. Paying it does nothing to boost your score and only re-ages the account and starts the 7 year clock over. Again, only pay if they delete it from your report.

You can negotiate a "pay for delete", which they may or may not take you up on. All contact will any debt collector should be in writing, because they will lie to you any chance they get. In writing you have hard copy proof and can sue them for violations. Because of this, in writing they are much more polite, friendly and helpful.

Creditboards.com is the place you need to go if you want this resolved in a manner that helps you. Google "codename47" and "fatwallet" for more help and inspiration.

 

[GuitarDaddy]

I'll share a little tip with you guys.

Collection agencies that by old unpaid debt RARELY GO TO THE TROUBLE TO ACCUMULATE PROOF OF THE DEBT, especially if its over a year old.

Check your credit often, and the minute a collection agency dings you DISPUTE IT IMMEDIATELY and force them to prove it. 90+% of the time they won't and the reporting agency is forced to drop it.

These guys are buying debt for pennies on the dollar, and anything that takes effort or money on their part is probably not going to happen

 

[SunnyD]

I just skimmed through this thread, and there is some incorrect/incomplete information in here.

Funny, everything you said is either common knowledge or has already been covered accurately in this thread, or isn't relevant to what was being asked.