Can I Negotiate with Debt Collectors?

Can I Negotiate with Debt Collectors? article image.
Dear Experian,

I have two charge offs on my credit report from two different credit cards. Is it possible to get the credit card companies to remove the charge offs? They are currently saying they cannot remove it but will update the status when the debt is settled or paid in full. I am thinking about settling the debt (negotiating to pay less than what I owe), but I'm wondering if my credit score will improve if I settle?

If the charge off is not removed but settled for an amount that is less than what I owed, will that improve my credit score? Is it worth settling the debt, or would it be the same as if did not pay the debt at all? What are the advantages to settling the debt if the charge off cannot be completely removed?

— SPD

Dear SPD,

If the debt is still owned by the original creditor, you can negotiate with them directly. It's important to consider all your options and be sure you fully understand how your credit will be affected before entering in to an agreement.

What a Charged Off Account Means

If an account has been charged off as a loss, the debt may have been sold or transferred to a collection agency. If so, the collection agency is the legal owner of the debt and you should work with them, not the original creditor.
A status of "charged off" is considered final. If you pay the balance in full directly to the original creditor, the account will be updated to reflect "Paid Charge Off." A Paid Charge Off will remain on the report for seven years from the date of the initial missed payment that led up to the account being written off.

Negotiating with a Debt Collector and Settled Accounts

When a lender or collection agency agrees to settle an account, they are agreeing to take a financial loss by accepting less than the full amount that is owed. A settled debt is considered negative because you did fulfill the terms of the original contract and pay the debt in full, as agreed.

When you negotiate with a debt collector to pay off an account for less than the amount originally owed, the collector will update the account to show that it has been "paid in full for less than the full balance."
Whether you settle the accounts or pay them in full, the collection account won't be removed from your report right away. Your credit report serves as a history of your accounts, so the payment history will remain even after an account is closed and the balance is zero.

Since your accounts were previously written off as loss, once updated they will show a status of "Settled/Charge off." This means that they were written off as a loss to the company prior to being settled. The accounts will be deleted from your credit report seven years from the original delinquency date that led up to the account being written off by the lender.

Accounts that were never late prior to being settled are removed from the credit report seven years from the date they are settled.

Will Settling My Past Due Debt Help My Credit?

Even though settling an account instead of paying it in full is considered negative, settling your past due debts may still be beneficial. How a settlement will affect your credit scores depends on the credit scoring formula being used, but settling a past due account will generally be viewed more positively by lenders than not paying it at all.

Some lenders require that any past due debts be taken care of before you can qualify for a new credit account. And, if the accounts in question have not yet been sold to a collection agency, making payment arrangements now can help you avoid further collection efforts down the road. A charged off account that is left unpaid may end up being sold to a collection agency, which could result in a collection account being added to your credit report as well.

Thanks for asking,
The "Ask Experian" Team

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