Chapter 1. What Is A Stale Collection Account?
A stale collection is any collection account that has been sitting on your credit report and, for whatever reason, you have not paid it. Typically, these types of accounts sit on your credit year after year. Then, since we are all the responsible, moral types, we get our tax returns or come across a large sum of money and we decide to pay off these old debts because it’s the responsible thing to do. After you pay your old debts, you think you are all in the clear and have good credit now. So you head on out to the electronics store to get that plasma screen TV. The sales person runs your credit and comes back and essentially laughs you out of the store! It turns out your credit is WORSE than ever now. What happened? Well what happened is your being “Mr. Responsible” backfired when you paid off those old debts. The older a debt gets on your credit report, with no activity such as partial payments, offers to pay etc., the less and less impact that item has on your overall credit score, until eventually it has really no effect on your score. It’s just sitting there as a “stale debt”. Then, you decided to pay off all of your old debt with your tax returns. By paying off that old debt, you just refreshed the date of most recent activity, thereby, pushing that old debt to the “front of the line” causing it to be among the most damaging items on your credit report. And your credit score takes a dive! You need to be really aware and educated as to what the possible implications could be if you pay off certain old debts. I’m not advocating that you don’t pay off old debts, I’m just advising you to be aware of what could happen with paying off old debts. Perhaps if you looked into doing a payment for deletion agreement with the creditor when you want to pay off these old debts it might “kill two birds with one stone.”
Chapter 2. Payment for Deletion Agreements
So you have collectors calling day in, day out, bustin’ your chops for payment of that charged off credit card. Usually debtors will just cave in and pay up just to get them off their back. I can understand that, you want them out of your life and off your phone PRONTO. The problem with that scenario is, you got that creditor paid off and off your back, sure enough. Here’s what you get: up to 7.5 years of bad credit! That settlement or paid in full account that you paid will sit on your credit report as an “R9” with a 0 balance for up to 7.5 years. This is when the statute of limitations expires for most debts. By the way, an “R9” is the maximum damage your report can sustain from any individual trade line (creditor). Here’s the light at the end of the tunnel: Payment For Deletion. This is an “open negotiation” tactic. The basic idea is you make an agreement with the creditor such as, “I will pay you $xx.xx, to settle this debt in full, in return, I want you [the creditor] to agree IN WRITING to delete this trade line off of my credit reports”. Don’t send your payment until you have their agreement letter in your hand.
Typically, when you call your creditor to attempt a payment for deletion agreement, the person on the front lines, who answers the phone doesn’t have the ability to do anything more than take a payment. They usually don’t have any negotiation authority. You’re going to need to talk to someone as high up as you can get, someone who can actually make a decision about your debt. With this strategy, you have real leverage! It’s a potential “win – win” situation. They want your cash; you want the trade line deleted off of your credit reports. It is a very empowering and winning strategy. I must mention a side note concerning settlement agreements. It is entirely possible, and legal, for a creditor who settles a debt for less than the amount owed to send you a 1099 Taxable Income form for the IRS. Which is to say that the “loss” that the creditor took because they settled for a lesser amount, now becomes “earned income” for you and is TAXABLE. So just be completely aware of what the possibilities may be.
Now that you know more of the technical details of what impact stale collections have on your report and possible remedies for them, I hope you are feeling a bit more empowered and are able to fight for what’s fair for you!