How will paying off a collection agency affect the credit report on which the non-payment is already listed?

Question

OK - I have a bill for a broken apartment lease that I was trying to fight (for a variety of good reasons) - and now it has gone to a collection agency for a total of $898.00. This item is already showing up on my Experian and TransUnion credit reports as unpaid and transferred to a collection agency. (I have 42 accounts in good standing and this 1 as "potentially negative" - ha!) Anyhow - my dilemma is: My FICO went down from a good 740 ish to a not-good 638 from apparently this siutation alone ... if I pay the bill now, will it even remedy the FICO score - or does simply having this on my record at all make it a moot point? I had good reason to fight this, but now I'm stuck. I'll pay the $898 if it will improve my credit rating, but why bother if it won't? I appreciate any realistic, practical advice any of you may have. Thanks!

Answer 1

Let me educate you on a couple of things, and correct some bad answers here.

When you pay off a debt, the creditor will place "paid" on your credit report. This does NOT remove negative information about late payments, or the fact that it was in collecitons. Therefore, you will still have a bad credit report, even after paying your debt. These answers saying it will improve your score don't know what they are talking about.

As Wade Q states, the proper procedure is to negotiate an agreement with the creditor. In exchange for paying off the bill, they must delete the negative information, or edit it to show "paid in full, as agreed". Anything else will still reflect bad on your credit.

Now....here's a better plan.

You say that you can fight this bill? Do you think you could win in court?

If so, then fight this bill. Start by sending a dispute letter to the credit bureau. Then send a letter to the collection agency and demand that the bill be validated. Send them any information you have to dispute the bill, and demand that they send you copies of contracts, bills, receipts and everything that was used to calculate what they claim you owe.

In many cases like this, the collection agency will send it back to the creditor and remove the listing from your report. They have 30 days to do this.

Or they will send you the above information. At this point you must examine it to determin if it's accurate. This is the info that they will use in court against you. If you think you can defend yourself against it, then continue on with the dispute process.

Send another letter to the creditor and inform him that he has failed to validate the debt, and by listing unvalidated information to your credit report he is violating the Fair Credit Reporting Act and you will sue him for $1000 plus damages if he does not remove it immediately.

Then sue him! It's a simple small claims court case. But expect him to counter sue you for the debt. That's why you need to be sure you can defend yourself in court over this.

In my opinion, if they have a valid debt, the collection agency would already be suing you instead of trashing your credit history. Make them prove their case!

I assisted someone with a similar problem. They were disputing the bill after they moved out of an appartment, and it went to collections. I sent them my "put up or shut up" letter and two weeks later the listing was removed and the collection was sent back to the creditor. Knowing that their case was weak to begin with, and wouldn't stand up in court, they didn't pursue it.

The problem with creditors is they are all gung-ho in trashing people's credit reports. But when you let them know you understand the law and will fight back, they usually back off.

Answer 2

If you pay the amount it will show up eventually ( in up to 6 months) as being paid in full and your score will raise. It probably will not raise back up to the full 740 that you had before because now that default will be on there for the next 7 years as being a "late pay" but it will be better.
If you don't pay, it will show up as being unpaid and in default and will stay that way for 7-10 years and your score will not come up.

You can place a notice in each of the 3 credit bureau files disputing the amount if you have a good reason(which you say you do and that can be attached) at which point the balance owed cannot be taken into account when applying for credit until the dispute is settled.
You can access your report and dispute accounts here... https://www.annualcreditreport.com/cra/index.jsp

Good Luck!

Answer 3

The points for having a collection are really bad - so the first thign you need to do is to call them and ask for a letter of deletion if you pay the balance....many times they'll negotiate the price owed too.

If they wont give you a letter of deletion - then pay it - AND challenge the entry once you've paid it. Dont say its paid in your challenge - say its erroneous. They have 30 days to respond. if they dont respond in that timeframe it must be deleted.

In the worst case scenario - you can comment on your TRW on any line entry so you can explain why this happened and that you've paid it, and worked with them directly to resolve this disputed charge to no positive end. Most credit companies will take that into consideration.

Remember when you make challenges/comments to anything on your TRW you need to do it with each reporting company individually.

Answer 4

They will report you as pif (paid in full) as long as you pay the original amount owed. If you settle then you will be reported as a paid settlement. The first one raises your score higher than the other of course.

Answer 5

The record will become, "Slow Pay', it will no longer be a debt. Your score will increase.

Answer 6

even if you pay it your score suffers at this point