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Top 3 Reasons You Should Never Settle With a Collection Agency

Updated on May 10, 2016

It’s completely legal for a collection agency to demand payment for debt that it claims you owe. In fact, an unpaid debt is owed until it’s either fully paid, settled or wiped out in bankruptcy. Perhaps the collection agency has just offered you a great deal on a past debt, maybe you can afford it—or better yet, it could be that you’re just tired of those harassing collection letters? Does this mean you should settle with collection agency? Absolutely not! Typically, settling with a collection agency, especially if you’re not adept at how the credit scoring system works, could be a bit tricky. Here are three reasons why you shouldn’t settle with collection agency, especially without proper knowledge of FICO’s scoring system:

Reason#3 Paying Old Debts Can Hurt Your Credit Score…

Life isn’t fair. Quite frankly, it can be even more unfair when you’re trying to restore your credit, only to find out that you may have done even more damage to your FICO scores. FICO’s scoring model isn’t infallible. But what it does, it does very well! Pure mathematical formula, the scoring model simply rewards and penalizes individual financial behavior. With this said, FICO’s scoring model was designed to weigh more heavily on recent behavior than past. Needless to say, anything recent that appears on the report—good or bad—will get its full attention. Did you know that when you make a payment of any kind to a creditor or collection agency your credit reports are updated to reflect that payment? Nevertheless, the date of the new activity can make the old, troubled account look more recent to the credit scoring formula.

Reason#2 Settling with a Collection Agency Could Mean Lawsuit…

Lawsuit. Just the thought of the word send chills down the spines of many consumers. As mentioned above, a collection agency has a legal right to make a claim for any unpaid debt you may owe. Unfortunately for the debt collector, if the unpaid debt you owe is particularly old, there’s a good chance that it has already exceeded its statute of limitation for a lawsuit. However, if you were to settle the account (i.e., make partial payment), this changes everything—namely, what this does is reset the statute of limitation, thereby making you liable for judgment.

Reason#1 Making Partial Payment Only Increases the Aggravation…

A debt collector is a person that is either loved or hated. In certain situations—especially in regards to a consumer engaged in credit score enhancement—it’s the latter. How aggravating it must feel to some people to make a genuine effort, only to find out they’ve been had? But over and over, and time and time again, this has indeed happen.

What Should You Do When Settling With a Collection Agency?

You can make settling with a collection agency a positive experience simply by following these three steps:

  • Always demand that the derogatory collection account be removed from your credit report as soon as the settlement is paid.

  • Make sure the collection agency agree not to sell any remaining balance.

  • Obtain a physical copy of a statement proving that you paid the balance in full.

    If you really want to protect your credit score, then there’s really only one thing you can do: Get everything in writing! You’ll find very few credit professionals to argue against this tactic. In fact, a signed written correspondence is the one true way to truly rid yourself of those pesky debt collectors.


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