I received the following question from a Minter via Twitter @johnulzheimer.
“John, I had a collection for a defaulted credit card bill from three years ago.
I want to buy a house and the collection agency told me that if I paid the bill they’d delete it from my credit reports. Their offer sounded suspiciously good so I did some research online.
I found some stories talking about “pay for delete” deals working and I found just as many suggesting that those offers are bogus and that the credit bureaus don’t honor them.
Can you shed some light on this?”
What is Pay for Delete?
“Pay for delete” is the informal way of referring to a collection agency offering to delete their collection account from your credit report if you pay them what you owe them.
There is no formal pay for delete program with the credit reporting agencies.
In fact, the credit reporting agencies frown on removing accurate negative information simply because it has been paid.
Rolling the Dice
I’ve read some of the service agreements the credit bureaus have with debt collectors and some of them contain language that warns collectors to not remove paid accounts.
The penalty for being caught removing accurate collections after they’re paid could be as stern as the collection agency losing their account with the credit bureaus.
That means no more ability to pull credit reports on debtors and no more ability to report collection accounts.
Additionally, the credit industry’s credit reporting standards guide (Called the Credit Reporting Resource Guide) also directs debt buyers and collection agencies to not delete paid collections.
The text reads, “Paid in full collection accounts must not be deleted” and “Do not delete paid in full collection accounts.”
Collection agencies that are removing paid collections that are not errors are rolling the dice. The credit bureaus aren’t stupid and if they’ll notice if a collection agency is ordering the removal of paid collections.
There’s legislation pending that would require the bureaus to delete all paid or settled medical collections within 45 days of a zero balance being reported.
It won’t pass though. It’s failed twice already.
Even if it were passed it would only apply to medical collections and not to any other variety, including credit card related collections.
A Back Door Method
There’s a back door “pay for delete” method that’s less common but equally effective.
A debt collector could tell the debtor to dispute the collection with the credit bureaus after it’s been paid.
The debt collector would then not respond to the credit bureaus request to verify the collection account and 30 days later the credit bureaus would remove it.
The problem with this method is you have to entice the debtor to actually file a dispute with each of the three credit bureaus.
This won’t remain a secret long if a collector does this with any frequency.
How Collections are Considered
The way collections are treated has changed considerably over the past few years.
FICO 08 (the most recent generation of FICO’s credit scoring models) ignores collections that have an original balance below $100, whether they’re paid off or not.
The VantageScore credit score version 3.0 (VantageScore Solutions’ most current credit score version) ignores all collections with a zero balance.
The only reason a credit score developer would have this type of selective treatment of paid or small dollar collections is that they either 1) aren’t as predictive of future elevated credit risk, or 2) there are other credit report items that are equally predictive and are a suitable substitute for consideration.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.