What Is a Pay-for-Delete Agreement?

If you've missed a payment or two in the past and your debt ended up in collections, it could have dropped your credit score by as much as 100 points.For that reason alone, you may be curious to learn if there's a way to wipe a collections record off your credit report.

Debt that ends up in collections helps explain why so many companies and websites say they can help you achieve pay-for-delete. Pay-for-delete refers to a financial arrangement between you and a creditor (often a collection agency) in which you promise to repay an agreed-upon portion of a certain debt. In return, the creditor agrees to remove the negative information about that debt from your credit report. The goal is to improve your credit score by removing marks that can lower it.

While in some cases it may be possible to negotiate such a deal, CBS News reports that it's unlikely if the debt in question is legitimate. Here's what to know about pay-for-delete—and an alternative worth trying.

Is Pay-for-Delete Legal?

The legality of pay-for-delete is murky territory. Here's why: The Fair Credit Reporting Act (FCRA) is a federal law aimed at ensuring the accuracy, fairness, and privacy of your information as reported by credit bureaus like Equifax, Experian, and TransUnion. For your protection—and the protection of any creditor who seeks a realistic picture of how you've managed credit—credit reports are supposed to accurately reflect your credit history.

By the strict letter of the law, creditors can be barred from consumer credit files if they are found to have provided false information to a credit bureau. In other words, when a creditor promises to wipe away any mention of your late payments, they risk their own access to credit bureaus. Still, some creditors or collection agencies may agree to a pay-for-delete offer in order to get paid.

However, just because a creditor or debt collector agrees to the offer doesn't mean they can or will carry through with their end of the bargain, even if they made the promise in writing. And if they keep up their end, credit bureaus don't have to accept it as the truth. While pay-for-delete isn't expressly illegal, it is frowned upon by credit bureaus, and all of the Big Three bureaus have clear policies against removing accurate, negative information, even for debts that have been paid.  

How Pay-for-Delete Works

In theory, pay-for-delete is a simple process. Here's how it works:

• Step 1: You contact (or someone working on your behalf contacts) a creditor or the debt collector hired by the original creditor.

• Step 2: You offer to pay a portion or the full balance of a debt.

• Step 3: In exchange, the creditor or debt collector agrees in writing to delete the account from your credit report.

• Step 4: After you've made payment, the creditor or debt collector stops reporting the negative account to the credit bureaus.  

A Somewhat Risky Road

If a negative mark on your credit report is accurate, no one can guarantee that a credit bureau will bend its own rules to delete it. It doesn't matter what a creditor or debt collector promises, because they cannot delete it themselves.

Further, it could be risky if you dispute the information directly with a credit bureau. Besides being unlikely to succeed, submitting a dispute can cause an update to a negative item (like an account being sent to collections), potentially making it appear more recent than it really is. Most negative marks fall off your credit report in seven years, and the last thing you want is for it to be highlighted, with the clock restarted.

In addition, if you complain to the credit bureaus and they realize the information they have is accurate, they may view any further disputes as frivolous.

While a negative mark remaining on your credit report for seven years may seem like a lifetime, your credit situation improves long before that time is up. With each month you pay bills as agreed, negative marks fade a little more into the background, and creditors become less concerned about them.

Strategies Worth Trying

If you decide a pay-for-delete agreement isn't right for you, here are a few other ideas worth considering:

• Goodwill adjustment: It may be a long shot, but if you've already paid a bill off, ask the creditor or debt collector for a goodwill adjustment. Write a letter to the creditor or debt collector asking them to contact the credit bureaus to remove a legitimate negative mark from your credit reports. Creditors don't have to consider your request, and you may never hear anything back. But if they give it a shot (and the credit bureau doesn't balk), the blemish may be removed.

• Debt relief: Suppose your budget is tight, and you're concerned about missing more bills. In that case, a debt relief program could help you consolidate and deal with your debts, potentially reducing your financial stress. A debt relief expert could help you work through your household budget to learn if consolidation will benefit you.

• Wait it out: As mentioned, negative marks may remain on your credit report for up to seven years, but that doesn't mean the sting of those marks lasts that long. The farther in the past they are, the less they concern potential creditors. What creditors are most interested in is how you've managed debt in the recent past.

By all means, if you find a mistake on your credit report, dispute it with the credit bureau in question (for example, if the credit report is from TransUnion, dispute it with TransUnion, because each bureau keeps its own reports). The credit bureau has 30 days to investigate. It must remove the negative mark if it can't find evidence that the report is correct.