Unpaid Collections

When unpaid collections show up on your credit report they may be described as collections, write offs or profit and loss accounts. No matter what they're called they are collections and the company wants you to pay the money that you owe usually with penalties and interest tacked onto the debt. Here's how to handle them.

Call the company that you owe the money to. Ask them if they will settle the debt for less than what's owed. Many times they will. If they agree to settle the debt have them send you something in writing that you can keep for your records. It should state the terms of the settlement. For example, if you owe someone $2000 and they agree to settle this debt with you for only $1000, make them put it in writing before you send them any money. When you get the written proof you will want to make payment in a way that can be verified such as a check or money order or some way that has a paper trail for you to keep in your records.

Make a credit file and keep all your correspondence and proof in that file for later reference. After you pay the debt, the company should report it as a paid in full or settled in full account to the three credit brueaus. But if they don't report it, then you will have your proof in your credit file. You can make three copies of it and mail it to Experian, Transunion, Equifax and ask them to update your credit history.

Sometimes collections are in such large amounts that it's hard to pay them in one lump sum so you could ask the company if they will enter into an agreement with you to make monthly payments until you can get it paid off. For example: If you have a debt of $2000 and you don't have a large amount to settle this debt in one lump sum payment, you might arrange to start sending them $100 per month until you get it paid in full. Again, ask for the agreement in writing. Make all your payments on time and in the agreed amount so that you will be establishing a responsible track record with your new agreement. Keep copies of all your checks or money orders. When the bill is finally paid in full the company needs to report it to the three bureaus. If they don't, you will have your proof of payments so that you can report it paid. Make three copies of your proof and mail it in.

Always remember that the company you owe money to is not in a hurry to update your credit for you. You will sometimes be the only one who cares enough about your credit to see that it gets updated in a timely manner.

When you pay off an old debt it will remain on your credit report for 7 years from the date that it first went delinquent. But while it's sitting there for 7 years it looks much better to be showing as paid collection instead of unpaid collection!

I saw a financial guru on tv the other day that said some companies will work with you to delete an old account off your credit report after you've paid it off. He said to request a PTD letter which stands for "Pay to delete". So apparently there's a fee involved. I had never heard of this in all my 12 years as a loan officer but according to him it can be done. It might be worth checking into to see how much the company would charge you to delete that part of your credit history.