Introduction
Let’s face it, money makes the world go ‘round. That is no secret, and it is certainly true in the credit repair and collections industry, where money is literally the reason why such firms exist in the first place. This translates into every aspect of the world of debt collection companies, even when you have negotiated a settlement with them to pay off a balance that you agree that you owe.
What happens is that, when a new debt collector takes on the debt of another creditor or former collection agency, they will send out a letter to you introducing their firm and letting you know that, “Hey, good thing we have your account, because we’ll offer you a settlement for only XX percent of your total balance.” What they don’t tell you is that, at face value, if you accept such a settlement and pay the debt, that is will still remain on your credit as a collections account – a negative item – even after you have paid it in full. This can have a detrimental effect on your credit score, as you will find that if you take this route to resolve an outstanding debt, your score may only rise by a point or two – or it may even go down!
Holding true to their hidden actual mission statement, these collectors will spend the time to remove the item from your credit, so long as you pay an additional fee to do so. This is called “pay-per-delete,” and it is a rather dishonest practice that preys on the consumer once again, to the point that you may actually end up paying close to the amount that was “forgiven” in the settlement agreement as a fee paid directly to the collection agency just to have the item reported as a “paid as agreed” or deleted as though it never existed. The dishonesty here is easy to spot because the truth of the matter is that the majority of people who pay off their old debts with collection agencies in the first place is to improve their credit by having the item removed, and they think that by paying the settlement offer, their credit will improve. The scenario usually occurs when the debt collector fails to mention anything about the impact on the consumer’s credit score, and a few months later, the consumer realizes that the item is still reporting as a negative item on their credit report – only now with a zero balance. In the old days, potential lenders would look at the situation and possibly forgive the negative item after realizing that the account has been paid off, but today’s creditworthiness is based more on algorithms and numerical scores than it is facts surrounding the items themselves. Next, the consumer will call the collection agency, usually irate but always confused, to explain that the item still appears as a negative; at which time, the collector will tell the caller that the removal of the item was never part of the settlement and that they will need to pay an additional fee to have them remove the item from your credit report.
To learn more about the process, this article is a great source of information and explains the shadiness surrounding the pay-per-delete process. Most industry professionals consider this process as unscrupulous, as it takes advantage of a gray legal area in the federal law that regulate credit repair organizations in general, the Credit Repair Organizations Act, or the CROA. Technically, the process is within the guidelines and provisions under the law. However, the creditors are able to take advantage of your desperation to have the item removed, especially the fact that most of the time, the consumer has already doled out the amount of money to satisfy the debt, and will thus be more willing to engage in this form of bartering to reach their initial goal of having the item removed in the first place.
While this may sound like a fair opportunity whereby the creditor receives a fair fee to take the steps necessary to remove the negative payment history from your report after you have made, it is not. The process is a hot-bed for unscrupulous collectors to take advantage of a desperate person in a desperate situation, and most collection agencies that have a good track record of ethical practices will not engage you in this process.
First, it’s important that we get something out of the way. No matter who your credit repair organization (CRO) happens to be, just like an attorney, they should be working for your best interest, as your advocate and your voice for reaching credit agencies that seem generally out of reach to the common person. Your CRO should work with you, after analyzing the specifics of your credit report and history, to determine the path that is the best for you – not for them. This means that if one pricing structure saves you money but costs them a little more, then they should advocate that you take the path that is best for you! When it comes to entering into a negotiation with the creditor to delete the item from your report after a settlement payment satisfies the debt, your credit repair professional should have a great deal of experience with this topic and with specific creditors, and they should steer you away from considering pay-per-delete as a viable option for removal.
Here are some tips to consider when determining whether or not pay-per-delete will work for:
Tip #1: There are other options available.
Most of the time, when you hire an organization to help you repair your credit, the first choice should be the dispute process, whereby the validity of the debt is disputed and, after several rounds of correspondence, other provisions of the federal credit laws are invoked, which is likely to lead to an eventual removal of the item from your report altogether. If you are thinking about working with a professional credit repair company, this process should be the first step that they take for you. A reputable credit repair agency will steer you as far away from pay-per-delete options as possible, and should only consider such an arrangement as the last resort, if at all.
Tip #2: Pay-Per-Delete will cost you more in the long-run.
Most pay-per-delete arrangements come about as a result of the example described above. You will likely be offered a “reduced amount” settlement where you pay around 50-70% (or less) of the original alleged amount owed on the account. Then, in order to have the item removed, the agency will charge you to have the item removed, which reduces any perceived reduction that the “reduced” settlement included. Then, imagine that you have multiple accounts in the same scenario, with another pay-per-delete fee paid to have each item removed, and you can then easily see how this underhanded scheme can lead to you paying thousands of dollars just for having the items removed.
Tip #3: The FICO-9 Scoring Model is Coming Soon.
FICO 8 is the most current form of the Fair Isaac Corporation’s (FICO) credit scoring algorithm. Currently, it takes into account any collection accounts that have been paid off and are still considered them as negative items, as described above. However, the new algorithm, known as FICO9, is making some changes regarding collections accounts. Once this new model becomes widely accepted, negative collections accounts with a “paid” or “zero balance” status will no longer have a negative impact on your credit report. Medical collections will also cease to have the enormous impact that they have under the current model. The implementation of FICO-9 is taking place as this post is being written, so take that into account before considering a pay-per-delete agreement with a collection agency.
Tip #4: Effective Negotiations Should Result in Removal as Part of your Settlement.
If you don’t remember anything else from this post, remember this point. If you have no choice but to take responsibility for a debt on your credit report and you enter into negotiations with the collection agency to settle an account, good negotiation skills can eliminate the need for a pay-per-delete scenario from occurring altogether. No matter if you are using a professional service or are doing it yourself, hold firm to the condition that unless the item is removed from your credit completely, there is no deal. Demand that everything related to the negotiation is presented to you in writing, including the agreement to remove the negative item and history from all major credit bureaus. Doing this will completely eliminate the need for further services of any kind, including pay-per-deletion schemes.
Conclusion
While the option to have a negative item removed in exchange for a separate fee to the collection agency may seem like a viable option, especially when you have already entered into a settlement agreement with the same agency – it is a slippery slope, indeed. Your first options should always include the dispute process, which any reputable credit repair agency will perform for you. If they are unable to remove a few collection items, and you are forced into negotiations, insist the deletion of the item be part of your “bottom line” terms of the settlement. Many times, you will find that credit repair organizations employ one person who has a background in the legal profession with tried-and-true negotiation skills. As a result, you should be able to avoid the need to consider pay-per-delete altogether, and this is definitely what you should shoot for. The bottom line is to make sure that, no matter which route you take, that you are not taken advantage of by shady collection agencies.
Source Material
- Magnify Money. What FICO9 Means for You. Retrieved from https://www.magnifymoney.com/blog/pay-down-my-debt/introducing-fico-9-what-this-means-for-you/
- Federal Trade Commission. Credit Repair Organizations Act. Full Text.
- http://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title15-chapter41-subchapterII-A&num=0&edition=prelim
- Creditcards.com. “Pay for Delete.” Retrieved from https://www.creditcards.com/credit-card-news/pay-for-delete-shady-credit-report-cleanup-1264.php
