If you pay the debt, negotiate a deletion of the credit reporting.

You Are Not A Deadbeat

I believe that most people want to pay their debts. Life sometimes throws them a curve ball, or worse yet, hits them with the pitch. Those of us in the consumer law business know that in most circumstances people fail to pay their debts not because they are “deadbeats” (a favorite term of the debt collection industry and its lawyers used to describe you, your family and your friends) but because they were forced to default by typically unforeseen circumstances. The usual culprits are a divorce, illness, accident or loss of job.

Folk who fall behind on their financial obligations often had to make difficult choices: “Do I keep paying the rent or the credit card bills.” Once they fall behind, often a nasty spiral begins; that’s when credit card companies jack up the interest rate to the “default” rate, which turns potentially manageable debts into obligations the consumer will never be able to pay even if he/she wanted to pay them when his/her financial situation improves.

So let’s say you find yourself in such a situation. You defaulted on a credit card account a few months ago. Thankfully, now your financial position is again starting to look pretty good, but your credit report is looking pretty bad–perhaps keeping you from refinancing your house, purchasing a new one or getting a good financing deal on a car. Let’s discuss first the situation where your credit card bank still owns your debt.

You look at the pile of persistent dunning letters or at the call screen on your phone showing all those annoying calls from the bank’s in-house collection department. You want to pay, perhaps making a deal to reduce the usurious interest charges and late fees you ran up after your default. You pick up the phone and call the bank to negotiate. You make a reasonable offer–much better than the pennies on the dollar the bank may be willing to get as the price of your debt when it sells it to a bad debt buyer after “charge-off”. The negotiated numbers sound good to both parties. There is just one more term you want in the deal: deletion of the reporting of the account to the credit bureaus. In the parlance of the industry, you want the bank to delete its “tradeline”.

You Can Make A Deal With The Bank

The eager-beaver bank collector (usually with a fancy title like “Specialist”) who negotiated the money terms tells you that, oh no, the bank cannot delete the tradeline because it is against the law to do so. That is plain and unadulterated bull$hit. Here are the reasons.

First, reporting to credit bureaus is voluntary. Nobody is legally obligated to report your debt to credit bureaus. Want proof of this? Find one of your accounts that is not reported to credit bureaus and tell your creditor to report it. You will be told to go fly a kite. Your creditor will tell you it does not have to report anything if it does not want to. That is a correct statement of the law.

Second, the Fair Credit Reporting Act (“FCRA”) only requires that if a creditor decides to report information about you to credit bureaus, it must report accurate and complete information. So, it would not be lawful, for example, for you to attempt to negotiate a deal that required the creditor to report to the credit bureaus that you “paid as agreed”, since you did not. That would be inaccurate. However, the creditor can make a “pay for deletion” deal which calls for it to report nothing about your account to credit bureaus, i.e., to delete its tradeline.

You Can Make A Deal With The Debt Buyer

Let’s look at the second scenario, where your bank sold the debt to a debt buyer. You should see two tradelines: one from the bank showing the negative history and a zero ($0) balance, plus a likely notation that the debt was “transferred”, and a second tradeline from the debt buyer, showing a balance but possibly no account history.

Just like you can negotiate a tradeline deletion with a bank, you can negotiate the deletion with the debt buyer.

I know you will want to delete the bank’s tradeline also, but I suspect you won’t be able to do so. Since the bank sold the debt to the debt buyer, it will have no incentive to negotiate a deletion of its tradeline (showing the zero balance). Given that the debt buyer will likely have no authority to act for the bank, it will not do it either. But by negotiating with the debt buyer you can at least get rid of one bad tradeline, which may be enough to help you get the credit you need.

Get It In Writing

By the way, confirm the deal in writing. Let me say it again. Whatever agreement you make with the bank or the debt buyer, make sure it is reflected in a writing from the bank or the debt buyer; it will not do for you to send a self-serving letter “confirming” the agreement. Don’t seek my help claiming that you made a verbal deal and that now the bank or the debt buyer does not want to live up to it. If you want my legal assistance, bring me the paper showing the deal you made.