There is a term being used by some credit repair and settlement companies called "Pay-to-Delete". Does this really work or is it just a scam?
I've been helping people resolve credit issues for almost 15 years. I am not a "credit repair" specialist, but having been in and around this industry for a long time, I've seen a lot of things come and go. Some good....some bad. Not sure about this "pay-to-delete" idea, but here are my thoughts:
What does "Pay-to-Delete" mean?
When a person runs into trouble keeping up with the payments on their credit accounts, all kinds of things start to happen!
If you've ever been in that position, then you know that as soon as you are 30 days or so late, you will start getting letters and/or calls from your creditor.
If you are able to get back on track, then fine. But if not, and your accounts start approaching 90 - 120 days late, then most likely you're account will be charged off, assigned or sold to a debt collection company.
Here's where things start to get serious!
Debt collectors earn money by getting you to pay....period. If they cannot get the job done, then the account may be pulled and placed with another collector.
So, it should not be a surprise if they are VERY AGRESSIVE in their collection efforts.
I've written many articles and blogs over the years on how to deal with agreesive and abusive debt collectors and while I'm not going to get into that in this blog, you might want more information, so click here:
When you have "past due" and "delinquent" accounts, you really only have a few options, such as:
- Debt Consolidation Loan (very hared to get when you are in this situation)
- Home Equity Loan (be careful...very dangerous!)
- Debt Management or Counseling Program (fine if you can afford the monthly payments)
- Debt Settlement Program (for those who cannot qualify for Debt Management)
- Bankruptcy (most people want to avoid unless there are not other options)
For the sake of this blog, let's focus on the Debt Settlement Program as this is where you might be introduced to the PAY-TO-DELETE idea.
In a Debt Settlement Program, the debt collection companies (and sometimes even the original creditor) may be willing to accept a reduced amount rather than the full balance due. This is called a "settlement".
Often, these settlements range from 30% -50%, depending on circumstances.
Once the settlement has been completed (according to the settlement agreement), the debt collector is supposed to report it to the major credit bureaus a $0 balance with a notation something like:
- "paid for less than full balance"
- "paid as agreed"
- "settled in full"
Although your credit report and score will start to improve with a $0 balance and the fact that you took care of this bad debt, the history of the action will still be reported for up to 7 years according to the Fair Credit Reporting Act.
The fact that you got yourself into credit/debt trouble and were not able to meet the payments/agreement you made with the creditor when issued credit are to be reported and thus, will negatively affect your credit score.
Yes, getting the account paid off via a settlement helps, but the history remains.
Here comes the new term...."PAY-TO-DELETE".
If that "history" could be deleted before the FCRA guideline of 7 years, it would help improve your credit score more quickly....or at least what the proponents of this method claim.
Rather than make a settlement offer of say, 50% of the balance to settle this account, you offer to pay 100% (or maybe a little less) if....(and here's the point....)
If the debt collector will agree to contact the major credit bureaus and have the account COMPLETELY REMOVED...just as if this had never happened.
Let's say you get an official agreement from the debt collector saying they will honor this "pay-to-delete" plan and it is signed and looks very "official" and "legal".
You make the payment (cashier's check to expedite the process) to the debt collector according to the agreement.
The agreement stated that within 15 days of receipt of the payment the debt collector would contact the major credit reporting bureaus to have the account removed.
You check your credit report after 20-30 days and guess what.....
The account was not removed!
Of course, you contact the debt collector, but are told that the agent who made the agreement did not have the aurthority and therefore they will not honor the deal (or some other excuse).
I suppose you could contact an attorney and file a lawsuit, but that is going to take a lot of money and time! And, there is no guarantee that the attorney will be successful!
- Maybe the "agreement" was not a "legal contract" after all.
- Maybe it is ILLEGAL for a Credit Bureau to remove an account, insinuating that the BAD DEBT never occurred! This is a very "grey" area as far as honest credit history reporting goes.
I'm using the word "maybe" because, not being an attorney, I just don't know. But, in my opinion, the credit bureaus (FOR PROFIT companies) are in business to sell CORRECT credit information to lenders that accurately shows the person's credit history in order to determine if they should or should not loan the money.
Think about this....
Let's say I'm a car dealer, and I run a credit report on a prospective buyer. The credit report comes back and looks good, but in reality, this prospect had had a couple of cars repossed in the last 3-4 years that are not being reported as they were removed via a "pay-to-delete" agreement.
The repossessed car(s) were sold at aucuion and the difference between the selling price and the total balance due at that time was awarded to the dealer/debt collector as a "deficientcy judgment".
The dealer/debt collector hires an attorney to go collect on the judgment and contacts the orginal owner.
The orignial owner offer a PAY-TO-DELETE deal. The deal/agreement was struck between the debt collector and the origninal owner of the car, and the payment was made and the credit bureaus removed the history of this repossesion(s).
Am I getting an honest credit report?
Of COURSE I'M NOT!
But, based on the information contained in the credit report, I grant the loan for the car.
Later, the purchaser runs into financial trouble again and does not make the payments.
I'm forced to pay the legal and repossession fees to get the car.
IS THAT RIGHT? Don't think so....
In fact, I believe I would file a claim and sue the credit bureau for their FALSE CREDIT HISTORY REPORTING.
Would I win?
Don't know, but I think you can see my point.
A Pay-to-Delete agreement may be completly legal, fair and ethical. But for now, until there is more proof, I'd be wary.
Rememeber the old addage....
If it sounds too good to be true, it probably is!