Creditors are not required to remove derogatory accounts from your credit report if the information is accurate. However, some creditors may be willing to negotiate a removal if you pay your account in full or make a reasonable payment offer. In general, old and inactive accounts have the smallest impact on your credit score, while new or active accounts have the greatest impact.
View the derogatory account on your credit report. Your credit report provides information about the account that may be useful in your negotiations. That information includes the amount you owe, age of the account and date the account is scheduled to be legally removed from your credit report. You’ll also find other information, such as the creditor’s contact information and your account number. Creditors may be more willing to remove reports when the account is a few years old and prior collection attempts have been unsuccessful – at that stage, many creditors are happy to receive payment from you and are willing to work out a deal.
Be cautious of collection statutes. These involve a creditor’s legal right to sue you in court for your debt. If a creditor wins a judgment, you’ll have a public record on your credit report. The impact of public records on your credit is similar to bankruptcy – creditors and lenders don’t look kindly on applicants with public records. Statutes vary by state, but most states have a three- or six-year statute, depending on the type of debt. Although creditors can still try to collect your debt, they have no legal recourse after the statute expires. Keep this in mind when you contact your creditor. Some creditors may threaten to take legal action if you don’t pay, so you should know if they’re able to take the action against you. Check with your state to determine its collection statute if you’re unsure of your local laws.
Contact the creditor and make an offer. Offer to pay the entire amount you owe, or offer a percentage of what you owe, but state that your payment is dependent on the creditor’s removal of the account from your credit report. If the creditor agrees to your proposal, request the agreement in writing.
Make your decision. In some cases, a creditor will try to negotiate other terms with you. For example, a creditor may refuse to agree to removal in writing, or may request full payment if you offer a partial lump-sum settlement. In this case, you can use the age of your account and length of time before automatic removal to help you decide if you still want to pay the debt. If your account has been inactive on your credit report and the creditor refuses to remove it, your payment will bring the account back into active status. Active collection accounts have a negative impact on your credit score, so your payment without removal actually makes things worse. By law, derogatory accounts can only be reported for seven years from the date of initial delinquency.
Pay the account. If the creditor agrees to remove the derogatory account, schedule your payment with the creditor, and request a written receipt from the creditor. Your statement should show a zero balance after your payment is made, even if you made a settlement offer. Keep the receipt with your records in case your account status is ever challenged in the future.
Check your credit report. Creditors are required to update your credit report with new information at least once every 30 days. If your credit report does not reflect changes as agreed upon by your creditor, contact the creditor to resolve the issue.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.