If you are paying or settling outstanding debts, try repairing your credit at the same time. Contact your creditors and offer to repay what you owe. Ask creditors to update or remove negative information from your credit report. When negotiating a settlement, be sure to get the details in writing. And make sure that it specifies the way in which your creditor reports your account status to the credit bureaus.
Settling a Debt
If you have a past-due debt that you would like to pay, while at the same time improving your credit, it may be possible to negotiate with a creditor or collection agency. Offer to pay the entire debt, or a percentage of the debt, if the collector or creditor agrees to remove derogatory information from its report to the credit bureaus, and reports your account as "paid as agreed.". You may also persuade the creditor or bill collector to simply remove the account from your credit report.
Credit Report Language
Some creditors or debt collectors may offer to report your account as "paid in full" or "settled for less than balance due," even if you pay your debt in full or settle for less than what you owe. Although it is better to have a report of a paid account than an outstanding debt,, these entries still reflect a negative payment history. During your negotiations, ask that your creditor report your account as "paid as agreed" in exchange for your full payment or an agreed-upon settlement.
You can also ask the creditor to simply remove the account from your credit report. However, this can potentially harm your credit score, writes author Dana Neal in "Best Credit." Fifteen percent of your credit score is based on the length of your credit history, and a longer history improves your credit score, according to MyFICO.com, a credit scoring service. Removing an old account that contains only mildly negative information, such as a few late payments, can do more harm than good.
Neal recommends leaving accounts that include mildly negative information, such as a payment that is less than 90 days late, to avoid further damage to your credit report.
Get it In Writing
Do not agree to settle a debt, or actually pay any money, until you have an offer in writing from your creditor or its collection agency. This offer should explicitly state that the creditor or collection agency will remove the account, or report it as "paid as agreed," to each of the credit bureaus, provided that you pay the settlement amount by its due date. If you don't get a written settlement agreement from your creditor, its representative or collector may simply claim no such agreement was made to remove or modify credit report information. Request a signed, dated settlement agreement on company letterhead before you send any money in debt payment.
Warning
If you begin settlement negotiations a debt, your creditor will assume that you have some assets. This can motivate a creditor to take you to court if you can't come to a mutually-agreeable settlement, according to Steve Bucci, president of Consumer Credit Counseling Service of Southern New England and a columnist for Bankrate.com. A lawsuit can cost you far more than paying the debt in full since a judge may order you to pay court costs and legal fees (n addition to satisfying the full amount of the debt). Plus, a court judgment will show up on your credit report, severely harming your credit.
Some credit bureaus, such as Experian, monitor credit reports for signs that a consumer's financial situation is improving. When this happens, the credit bureau notifies other creditors to let them know that you have money to pay your bills. If you settle or pay a debt in full, and your creditor reports this to the credit bureaus, other creditors may renew their debt collection efforts.
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