Disclaimer: I'm not a lawyer, so please don't construe this as legal advice. I'm simply sharing my research and experience in credit repair.
While it's true that you can survive without credit, building wealth is incredibly difficult without a healthy credit history. For most of us, there are some items which are simply too expensive to purchase outright. These types of purchases, such as a new home or automobile, generally require some sort of financing. Without a decent credit score, you'll end up paying a higher premium on the money borrowed to pay for these big-ticket items. This is especially true in the wake of the 2008 market-crash, which has caused lenders to be increasingly risk-averse in the new economic climate. Having a debt in collections is one of the highest-impact factors to your credit score. Whatever your reasons for getting to this point, you need to be strategic about your next move. A pay for delete letter can be an effective tactic if utilized correctly. A goodwill deletion letter (also known as a clean credit letter) can also be a useful tool in repairing your credit. In this article, I'll go over how and when to write each of these letters, the difference between them, and their relationship to each other in an overall debt collection removal strategy. Where possible, I'll offer my own personal experiences with this.
Arm Yourself With Knowledge
Before you begin the process of credit repair, it's important to know the rules. Although it's too dry to read in its entirety, you should familiarize yourself with the Fair Credit Reporting Act (FCRA). This document regulates the extent of what debt collectors can do and imposes rules on their interaction with you. If you have documented evidence of a collections agency violating these laws, it can be tremendous bargaining leverage and potentially grounds to have a debt removed altogether.
You are also actually entitled to a free copy of your credit report from the three major reporting agencies once per year. But BEWARE! There are a lot of "free credit report" scams out there. In general, if a site is asking for billing info, it's probably a bad sign.
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Timing is Everything: Debt Validation and The Statute of Limitations
The statute of limitations on the reporting of a debt is typically around 7 years. However this can vary between states and types of debt. Unfortunately there's really no substitute for research in this area. I've heard stories of people walking away from debts but, in my opinion, this seems incredibly risky. If you're down to your last resort, this is something that can be examined further, but I never considered outlasting the statue of limitations as way to clear to my credit report. However, if you notice your credit report shows adverse items older than the statute of limitations, you do have the right to have these removed.
Another useful tactic is debt validation. The FCRA provides 30 days for any collections agency to provide evidence that the debt is actually yours. During this period, they must cease contacting you until they can validate the debt. If 30 days elapses and they can't validate the debt, they need to remove it. If you believe the debt collector is contacting you in error, you absolutely should enter the debt validation process. Some recommend that this process is used in every collections situation as a stalling tactic, but I'm of the opinion that once a collections agency has hard evidence of your debt, that you've lost some bargaining leverage when trying to settle. Again this is a strategic choice and highly dependent on your personal situation.
The Pay-For-Delete Letter
There are lots of websites that offer a form letter to send. The tone of this letter is often very formal, filled with legalese and, in my opinion, a bit threatening. It's important to understand that under the Fair Credit Reporting Act, if the debt is verifiable, the debt collection agency is not under any legal obligation to delete your account rather than reporting it as settled. Settled is better than delinquent, but what we're really after is removing any adverse report completely. Therefore, what you're requesting is a favor for a favor. However, Your letter should strike the balance between legally protecting yourself and requesting some assistance. This is done by avoiding any implicating language but having a semi-personal tone. I was able to have some degree of success by modifying an existing form letter and adding a human element. Here's what I wrote, offering to pay ~70% of what I owed in return for deletion:
Dear Sir or Madam,
My name is [Your Name] and I am writing in response to account XXXXX. I have not yet been contacted by anyone at your firm, but in retrieving a copy of my credit report I've found that you are now in possession of this account. I wish to save us both some time and effort by settling this debt.
I am aware that your company has the ability to report this debt to the credit bureaus as you deem necessary. Furthermore, you have the ability to change the listing since you are the information furnisher.
I am willing to pay $XXXX.XX as settlement for this debt in return for your agreement to remove all information regarding this debt from the credit reporting agencies within ten calendar days of payment. If you agree to the terms, I will send certified payment in the amount of $XXXX.XX payable to [Debt Collection Agency] in exchange to have all information related to this debt removed from all of my credit files.
I realize that you're not in any way obligated to comply with this request. I'm just a young professional trying to achieve financial stability and to this end I'm humbly asking for a bit of assistance in repairing my credit.
However, please be aware that this is not an acknowledgment or acceptance of the debt, as I have not received any verification of the debt. Nor is this a promise to pay and is not a payment agreement unless you provide a response as detailed below.
If you accept this offer, you also agree not to discuss the offer with any third-party, excluding the original creditor. If you accept the offer, please prepare a letter on your company letterhead agreeing to the terms. This letter should be signed by an authorized agent of [Debt Collection Agency] and postmarked within 15 calendar days of this e-mail. The letter will be treated as a contract and subject to the laws of my state.
Please address all correspondence related to this account to:
If I do not receive your postmarked response within 15 calendar days of this e-mail, I will withdraw the offer and request full verification of this debt.
The Result: I ended up having to pay the full amount, but the collections agency did delete the report. Perhaps coming in closer to the full amount may have gotten me a discount. It's also important to consider the nature and amount of the loan. Mine was a school loan in the thousands. Considering that student loans can't even be discharged through bankruptcy, I'm chalking this up as a win.
The Goodwill Deletion Letter
This letter should be sent only after a debt is settled. In it, you're essentially asking the agency to stop reporting your debt as settled to credit bureaus and delete it altogether. While the pay-for-delete letter is trying to use some amount of money as leverage to gain a favor, this letter is strictly a request for a favor. When writing this letter, keep in mind that the collections agency has already settled their debt and therefore has no vested interest in helping you out. The tone of this should be a bit more personal and humble. While I haven't written one of these, in the examples I've seen, it tends to help if its an older debt and you've since established some good credit history.
Credit repair is a tricky thing and at times it can feel like walking a tight-rope. Many collections agencies use fear-mongering tactics and rely on information asymmetry to apply pressure. The best way to make it through the arduous process of credit repair with your sanity in check is to be informed.
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