I will gladly give you a pound of flesh Tuesday for a hamburger today.
July 20, 2006 7:24 PM   Subscribe

Will making a plan to pay off a creditor improve my credit rating...even before the whole balance is paid? Or do collectors not report to the agencies until the whole balance has been collected?
posted by bingo to Work & Money (19 answers total)
Making regular, on-time payments to credit card companies, not necessarily collection agencies, will affect your credit score in a positive way but paying them all off will give you a much more satisfying bump upward.
posted by fenriq at 7:38 PM on July 20, 2006

Response by poster: Ok, just to clarify. I'm only talking about collection agencies. There are no credit cards involved. Even the debts have nothing to do with credit cards, and I have no credit cards now.
posted by bingo at 7:47 PM on July 20, 2006

Not to pick too big a nit, but...first, have you verified that this non-credit card debt is being reported to one or more of the big 3 reporting agencies? If the creditor isn't a bank, this part cannot isn't necessarily a given (though collection agencies often do like to submit a delinquincy report if it's not already there, since that increases the pressure to pay off).
posted by nakedcodemonkey at 7:59 PM on July 20, 2006

Response by poster: nakedcodemonkey: Yes, it is definitely being reported to one of the three agencies. I have run my own credit report with all three.
posted by bingo at 8:07 PM on July 20, 2006

If your debts were charged off and sent to collections, the chargeoffs are going to stay on your credit report for seven years even if you pay the collection agency right away. I was fucked in such a way some years ago -- an account went to collections because I stupidly believed my partner had paid the bill, and even though I paid off the total amount within a month of finding out it had gone to collections, the chargeoff is still on my credit report and I've been denied credit (or forced to pay huge deposits on certain things like a cellphone contract and apartment lease) as a result.

The only thing that truly repairs bad credit is time.
posted by Gator at 8:07 PM on July 20, 2006

Response by poster: Gator: I've seen the report, and it isn't that cut and dried. It's clear which debts have been paid off and which haven't. And I've been turned down for credit more than once with a rejection notice that specifically says that it's because I have unpaid items in collection.
posted by bingo at 8:15 PM on July 20, 2006

Slightly unrelated but just trying to be helpful: you say that you have no credit cards now, which tells me that you had them at one point. And you've been rejected by credit cards companies. Why not ask your old credit card companies for another account? Seems to me that past issuers would be more likely to have faith in you than new issuers. Just a thought.
posted by SeizeTheDay at 8:27 PM on July 20, 2006

Response by poster: SeizeTheDay: I haven't had credit cards in a very long time, and I don't want any. The credit that I've been rejected for is for things like financing a computer. I'm also concerned about credit checks that might be made when I apply for apartments or the financing of a car.
posted by bingo at 8:30 PM on July 20, 2006

My credit report is also clear that the debt was paid off -- but it's also clear that the debt was charged off before it was paid off, and that's a black mark that can't be erased (except by the passage of seven years). Believe me, I tried -- I called the original debtor after I had been turned down for an Amazon card, saying, "Hey, I paid this debt, why is this still coming back to haunt me?" Their response was that I had, in fact, been delinquent and the debt had, in fact, been charged off and there's no removing that fact from the credit report.

I'm just saying, I don't think it's going to really make a lick of difference whether you pay the collection agency in installments or not, because whatever you do, you're probably still going to get turned down for future credit because of the chargeoffs. If you had made a payment plan arrangement with the original debtors, before they charged them off, that would've been different.

See the FTC's page on credit repair -- "When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years."

Just prepare yourself, when you apply for something like an apartment, to say that your credit report might not look so good, but you're willing to put down X amount of dollars as an extra security deposit, or whatever, to reassure them (I had to fork over $400 just to get my cellphone and an extra month's rent to get my current apartment).
posted by Gator at 8:45 PM on July 20, 2006

I would suggest paying.

I had several (four or five, at least) chargeoffs and either paid in installments or settled for less than I owed, and now (about three years after completing payment on all debts) I'm back in the game and able to get decent interest rates, high dollar limits, etc.

These chargeoffs still appear on my credit reports and will continue to do so for a few years, but all of them state that they are paid and taken care of. I think it makes a big difference to lenders.

I have also worked in auto finance and collections, and my personal experience is in line with my experience working in the industry.
posted by padraigin at 9:22 PM on July 20, 2006

I think that if the credit report for someone shows that he's in debt over his ears already, and having trouble getting back out of debt, then he's not a good person to extend new credit to.

That may be what they're thinking about when they deny you credit. I would tend to think that once you've paid off the old debt, then things will get perhaps a bit easier.
posted by Steven C. Den Beste at 9:26 PM on July 20, 2006

Response by poster: I'm going to pay. And I'm far from being over my ears.

The only question really is whether it makes any difference whether I save up the money owed and pay the collectors in a lump sum, or if I make a plan to pay them gradually. In my experience, if you pay them gradually, they try to stick you with extra stuff like $5 check processing charges, so it's actually cheaper to pay it all off at once, all other things being equal.
posted by bingo at 9:55 PM on July 20, 2006

bingo, do what works for you.

I would suggest keeping an open line of communication with your creditors, and see if there are any possibilities for settlement down the road--I don't notice much difference in my credit score from having settled for a smaller amount, versus having paid off in full. And if there is, it's offset by the psychological bliss of not having to think about it anymore.

If you land in a lump sum of money, even if it seems unrealistic as a settlement amount, you'd be surprised at what collectors will accept just to get you out of their queue so they can get some fresh blood. They would in fact MUCH rather have your hamburger today, than your pound of flesh on the 15th of next month.
posted by padraigin at 10:02 PM on July 20, 2006

Response by poster: I'm not sure if I'm in anyone's queue. We're not talking about people who are beating down my door here. If I hadn't run my own credit report, I wouldn't even know how to get in touch with them.
posted by bingo at 10:08 PM on July 20, 2006

Nice. Low pressure.

You can work out settlement arrangements if you can manage it. If you find yourself with a tax return, or your parents drop some birthday money on you, or you get a bonus--consider offering some of it up to the gods of debt. In my case I made a deal with my then-fiancé that allowed me to funnel a few paychecks directly to my debts, before I left work to have kids.

When I worked in the collections business, if we got cold-called by a debtor, we'd pretty much give them the moon and the stars just for the sheer joy of not having to deal with someone who hated us.
posted by padraigin at 10:16 PM on July 20, 2006

When I worked in collections, if a debtor made on-time payments for a certain amount of time (I think it was like six months' worth of payments), we would provide them with a letter stating that payments were being made regularly to reduce the debt. We'd tell the debtor they could send the letter to the credit agencies.

And I agree with what padraigin said - if someone cold called us, we were very very happy.
posted by Lucinda at 5:49 AM on July 21, 2006

Just don't give ANY collection agency your banking information and NEVER EVER let them do any sort of automatic funds transfer. Pay them (on time) with a US Postal Service money order only.

I think that 99.5% of all creditors are pure scum. They just want the money, and that's it. They don't care about why the bill wasn't paid.
I've had such bad luck with creditors that I now refuse to deal with any of them and I make them deal directly with a legal type in the family instead.
posted by drstein at 10:57 AM on July 21, 2006

Wooooooooooah, they never contacted you, you contacted them? Have you gone through the process of requesting validation for the debt? Have you kept all the correspondence?

For the record: I am not suggesting you do not pay your obligations, however I AM suggesting you improve your negotiating position so you can get the best possible result for yourself.

First, you need to request they validate the debt. You're either dealing with a collection agency (CA) acting on behalf of the original creditor or you're dealing with a junk debt buyer (JDB) who has purchased that debt for about $0.03 per $. Either way they're obligated to validate and do so with something more substantial than a bullshit Chaudry letter.

"But it's really mine, I really owe it, I want to pay it in full." Fine. But wouldn't you rather have them remove the entry in full from your credit report rather than just change "COLLECTION" to "PAID COLLECTION" and have it stay for 7 more years? And it will - an entry lives for seven years FROM LAST ACTIVITY. It's grossly unfair that the person who pays off a 6-year-old debt gets to suffer for another 7 years where the deadbeat who doesn't has it go away from his report (if not his obligation) in 12 months. But that's the way of the world.

What you're angling for there is called "pay for deletion" and you can google around for it.

I've written on this issue extensively before, you can look at my past answers from my profile.
posted by phearlez at 11:21 AM on July 21, 2006

Response by poster: "But it's really mine, I really owe it, I want to pay it in full." Fine.

I have no such scruples. I'm going to pay it only because my credit sucks, and this is all I can do in the hope that people looking at the report will consider giving me a break anyway.

I will look into pay for deletion, thanks for that. Unfortunately, these debts are the last of many, some of which have been paid relatively recently, so I don't think it will make a big difference if they stay on the report, one way or the other.
posted by bingo at 7:29 PM on July 21, 2006

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