How an item is classified has a big effect on your credit score. Many people feel that they have no choice in how negative items like a collection account appear on their credit reports. What they don’t know is that you can always negotiate how an item is classified on your credit report!
The notations that appear after a trade line (ex. charged-off ) have an effect on your overall score. So it’s important to make sure you try and get the credit reporting agency to alter these in your favor if you can.
The information that creditors offer to credit reporting agencies is all given voluntarily. Which means that if you can persuade them to, they have the power to delete or change any negative listing, thereby improving your overall credit score.
The number 1 rule in dealing with a collection agency is to get EVERYTHING in writing. Negotiating over the phone and expecting them to keep verbal promises is NOT a wise thing!
Every collection account works against you when it comes to your credit score. Of course the older the account, the less impact it has on your score. And a paid collection is better than an unpaid one.
But if possible, you should negotiate with the collection agency to remove their listing completely when you pay them off. They should be able to do this, but will act like they can’t. Remember this is a negotiation. So you may have to pay a bit more, but its important to have them remove themselves from your credit report.
Although this is an easy thing for them to do. You will find some companies just WILL NOT work with you. If for some reason, you can’t get a collection removed altogether, then it’s time to take a look at the different notations that collections get filed under.
Notations in order of preference
Saying “Ask the original creditor or collection agency to remove the listing” can be easier said then done in some cases. Not everyone will play ball. So below are ways that collection accounts can be listed on your credit report. We listed them from the best option to the worse.
‘Paid as agreed’ or ‘Account closed-paid as agreed’
If a lender won’t delete the listing from your report. Then the best case scenario is a notation that states that the debt has been paid off on time, and the account is now closed.
If you can’t get the collections agency to agree to the notation above, then at least get it listed as ‘paid’. Just ‘paid’, not ‘paid charge-off’ or ‘paid repossession’ or any other term that includes negative words that will damage your rating. The word ‘paid’ is neutral, and although not good, its better than paid charge off.
‘Paid charge off/collection/was…days late’
Don’t accept this. Believe it or not, having this on your credit report has almost the same effect as not having paid the debt at all. If this is the best deal you can get, you should accept it and then turn around and dispute it. Most creditors won’t re-verify the information since its paid and they have their money.
‘Settled’ basically means that you have come to a compromise with the creditors, usually one that leaves them with some sort of loss. This definitely has a more negative effect than ‘paid’ or a complete removal of the account, but it is better than having an unpaid collection. Again, dispute this as soon as possible.
Remember you want to go for complete removal. And sometimes that means paying more than the negotiated amount. But if they simply refuse to remove the item. Negotiate for the best status you can get using the guidelines above.
Lastly, don’t forget to contact the original creditor if the original debt is showing up as a charged off account. Now that you have settled the debt they need to change their status. They are legally OBLIGATED to do this since it is no longer a charged off account. They also need to show the balance as “$0”.