A debt collection is one of the worst entries on your credit report. A collection is a severely past due account that will make it difficult for you to get approved for new credit and loans.
If you have a collection account on your report, it’s likely affecting your credit score. This is especially true for more recent collections. You can improve your credit score by getting these collection accounts deleted from your report or reported as “Paid” or “Current.”
Before you pay off a collection account, first negotiate with the debt collector to have your credit report updated to something favorable. The only unacceptable scenario is to pay the collection without having having fact reflected in your credit report.Here are some possible payment scenarios and outcomes, listed from most ideal to least ideal (but still acceptable).
Negotiate with the debt collector to have the account deleted from your credit report in exchange for payment. Send a written request (a pay for delete letter) to the collector offering a settlement payment if the collector deletes the account from your credit reports. Wait for a written response from the collector before taking any action.
If you prefer, you can contact the collector by phone to negotiate pay for delete. However, you risk inadvertently saying something to the collector that conveys responsibility or liability for the debt. You don't want to do this if you're beyond or nearing expiration of the statute of limitations. Even if you choose to negotiate by phone, you still need to have the agreement in writing. Have the collector mail or fax you a letter including the terms of the agreement before making a payment.
Here's a Sample Pay for Delete Letter you can use to negotiate with collectors. Remember, debt collectors don’t have to remove accurate entries from your credit report.