Ask Stacy — Will Paying Old Unpaid Debts Improve My Credit Score?

Here's how to improve your credit score if you have debt in collections. Paying it off may or may not be the answer.

If you’re going to pay it, try to get something in return

Some negative marks in your credit history (like a foreclosure or tax lien) aren’t going away, but collection agencies and lenders may remove charge-offs or collection accounts if you negotiate with them.

Before you pay anything, write a letter to the creditor and ask to have the account removed or marked as “paid as agreed” in exchange for your payment. After the creditor agrees (in writing) to remove the negative mark, pay the balance.

It’s called “pay for delete.” Here’s a sample letter you can try, courtesy of Creditmagic.

Name of Collection Agency
Address of Collection Agency

Re: Collection Account for Original Creditor Account Number
Amount: $50.00

Dear Sir or Madam,

I am disputing the validity of the debt referred to above. I am not aware of the account number, and you have not informed me of the existence of this account.

I am willing to pay this account IN FULL (or a settlement percentage, whichever is feasible) if you agree to immediately delete the account from the credit reporting agencies (namely Equifax, TransUnion and Experian) that you have reported to, and validated this account. My sole purpose is to get this item removed from my file. This letter should not be interpreted as recognition of the debt or acknowledgment of liability for the debt.

If you accept the terms of this agreement, the certified amount of (whatever is owed) will be sent to your collection agency provided there is complete deletion of any reference to the debt from my file on all the credit bureaus that you have reported to, and the debt is validated. As the full amount demanded will be paid back, there should not be any waiting period to delete this item from the reporting bureaus.

Your agency should delete all information regarding the account from my credit files within 10 business days from the receipt of the payment, as mentioned in this agreement. The terms of this agreement will not be discussed with anyone but the original creditor. No third party will be informed if contacted and no acknowledgment of the debt, any kind of payment, or settlement will be discussed if I am contacted by the Reporting Agencies.

Following the acceptance of the agreement, please prepare a letter on your company letterhead unambiguously agreeing to the aforementioned terms and conditions and have it signed by your agency’s authorized signatory. This letter will imply a legal contract, enforceable under my state law.

If I do not receive an approval letter within 15 days of your receipt of this letter, I will withdraw this offer.

Please communicate regarding this account to the address mentioned below.

Your Name
Your Address
State Zip Code

If you’re not going to pay it, ignore it

If neither of these approaches work and you don’t require an instant fix to your credit score, the best idea may be just to let it go. Other than a clear conscience, you’re not going to gain much by simply paying off the debt. And the older it gets, the less it will impact your score. After seven years, it drops off entirely.

But if you do decide to contact the lender or collection agency, a word of caution. Note this language from the letter above: “This letter should not be interpreted as recognition of the debt or acknowledgment of liability for the debt.” There’s a reason it’s there. Making a partial payment on a debt or in any way acknowledging its accuracy could restart the clock. Not the seven-year clock when the debt falls off your credit report — that never changes — but the statute of limitations clock.

I won’t bother with a long explanation of what this means, because I’ve already written about it in “Ask Stacy: Is There a Statute of Limitations on Debt?” Suffice to say that acknowledging a debt is legitimately yours could give the lender or collection agency the ability to sue you and get a judgment when they may not have otherwise been able to do so. So whenever dealing with anyone attempting to collect a debt, choose your words and deeds very carefully.

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About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got some time to kill, you can read more of my work here.

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Stacy Johnson
Stacy Johnson @moneytalksnews
I'm the founder of Money Talks News and have spent the last 40+ years in the personal finance trenches. I'm a CPA, author of a few books and multiple Emmy recipient. I'm ... More

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