Alternatives to Waiting

While time will heal your credit report, there are ways to improve your credit ratings without waiting (assuming you’ve changed your ways).

Note: If it has been nearly seven years since you had any late payments or charge-offs, you probably are better off waiting out the time until your credit score automatically increases.

But, if your credit problems are more recent, you can take steps to have charge-offs reclassified as something more palatable to lenders.

Keep in mind that, in order to accomplish this reclassification, you will need to pay off the debt in question—or at least pay part of the debt, if you are able to negotiate a settlement.

Whatever you do, don’t just send in the money owed. Follow the process we outline below, so you get the most benefit, in terms of your credit report and credit scores, from the dollars you fork over.

If the account was turned over to a collection agency, you will want to negotiate with the collection agency directly.

You have two goals in this process, as far as your credit reports are concerned:

• to have the collection agency remove its listing from your credit report entirely; and
• to have the original creditor report your account to the consumer reporting agencies as “Paid as Agreed,” or “Account Closed/Paid as Agreed.”

This is the outcome that will have a profoundly positive effect on your credit report. Any other outcome is not nearly as desirable.

Don’t send any money until you get these agreements in writing. Period. A verbal agreement is not sufficient. And, once they have your money, your ability to negotiate is over.

You should do all of your communicating with the collection agency and the original creditor in writing, and ask that they respond in writing, as well. When you mail a letter to either company, also be sure to send it certified and get a return receipt. And save copies of every letter you send. The idea is to create a paper trail.

When you are negotiating with these companies, try to remember that this is not about morals or ethics or whether you’re a good or evil person. Some collectors are trained to use language about “ethics” and “shame” in order to convince people to pay larger settlement amounts. Your arguments will need to focus on dollars and sense—business sense—in order to persuade these companies to accept as little as needed to report the debt “paid as agreed.”

If you cannot get the original creditor to report your debt “paid as agreed,” you may want to accept a notation of “Paid” or even “Settled.” However, these are not as good for your credit score overall.

There is some risk in initiating this process. The creditor may not agree to do anything you request. Instead—knowing that you have at least some money to repay your debt—it may take you to court, get a judgment against you and then collect not only the debt, but also interest, court costs and legal fees.

Next: New Credit Identity