Lessons in paying off delinquent debt

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
I had an old bank account that went into collections. I recently realized it and called the collection agency. While talking to them they said if I paid it off in full, it could add 150 points to my credit score. I found this to be far-fetched. But is it true?  -- Travis

Answer for the CreditCards.com expert

Dear Travis,
Sorry to tell you, but the folks at Fair Isaac said that the original delinquency that caused the collection is what is factored in your credit score and paying the account will not improve your credit score.* The collector is obviously throwing that information out there in the hopes it will encourage you to pay your debt off in full. Remember, most of a collector's pay is derived from the amount they collect. The more you pay, the more the collector earns. 

If the debt is your responsibility, and you can afford to pay it off in full, you should -- end of story. Even if it doesn't raise your credit score, you are much more likely to qualify for a loan if all of your accounts are paid. It is well worth it to be free of the collection process and to know that you made good on your obligation. Before you make the payment, you might want to request in writing that the collector agree to remove the notation from your credit report once the debt has been paid. Many collectors will agree to this, and the removal of the item from your report will improve your credit score by the most points. However, make sure you have agreement from the collector in writing before you send the payment.

If you cannot afford to pay the obligation in full, then you will need to make arrangements to make monthly payments that you can afford. Many collectors will push for and even state that they will accept nothing less than full payment, but you can't pay what you don't have. Don't make the mistake of promising more than you can afford. Be honest; analyze your budget before you make an offer to the collector to ensure that you can pay the monthly amount you offer.

All communications with the collector should be in writing. Even if you come to an agreement on the phone, put it in writing and send it to the collector or vice versa. Keep copies of canceled checks and all written correspondence with the collector. If the collector believes that you can afford to pay more or is not willing to wait for the money, the company may sue you in court for the amount owed. Typically, a collector is not going to bother suing for a debt unless the amount is large enough to make it worthwhile.

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Should you be summoned to court, you should always appear. Unless you are in attendance to explain your side of the story, the judge will only hear from the collector and will make a decision based only on those facts presented by the collector. Take to court all documentation that you have concerning the debt, and explain to the judge that you have been making a monthly payment that is the maximum that you can afford to pay. After hearing from both you and the collector, the judge will make a decision in the case, and you and the collector must abide by that decision.

It is likely that as long as you have presented your case truthfully, the judge will side in your favor, and the collector will be ordered to accept your monthly payment until the debt is paid. However, should the judge agree with the collector, a judgment may be issued to the collector in the amount that is owed. The collector can then use the judgment to garnish your wages or place a lien on your property. State laws will apply when executing a judgment.

Take care of your credit!

*As originally published, this column inaccurately stated that paying off delinquent debt will improve your credit score. Please see CreditCards.com's correction policy.

See related: Debt collection sample letters, Statutes of limitations on credit card debt, 11 tips for dealing with debt collection, collectors, Know your rights: Fair Debt Collection Practices Act 

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Updated: 11-24-2017