Credit reports rate your ability to pay back your debts on time. A delinquent account brings your credit score down. If you pay off the account after it has already shown up on your report, this does not make much, if any, difference in your credit score. But having the account removed from the report can improve your score. To remove the account, you must contact the creditor and ask it to delete the account as a condition of your paying a portion or the entire outstanding amount.
If you make a late payment on an installment or revolving loan, such as a car or credit card, you can offset the damage to your credit score by continuing to pay the accounts on time. The more payments you make on time, the less one late pay will affect your score. On the other hand, defaulted debts, such as charged-off credit cards (accounts 180 days late that the creditor has closed and taken a loss on), tax liens, unpaid collections, defaulted student loans, or even deficiency balances from a repossession, can harm your credit score for years. Even if you pay the account, the initial placement of the delinquent account on your credit report causes most of the damage to your score.
Normal Operating Procedure
In their agreements, credit reporting agencies state that they do not remove delinquent accounts, even if you pay off or settle them. They continue to report the account with a 0 balance until it is eventually removed after a set amount of time. Late accounts should drop off your report after seven years, even if they are unpaid. If they don't, you can dispute the account and have it removed from your credit report. After two years, the impact of your delinquent account on your credit score lessens because credit reports are primarily weighted to rate your credit based on the most recent two years.
Your creditor can delete your account from the credit report or stop reporting it. For that to happen, you need to negotiate a "pay-for-deletion" deal. Typically, it is best to offer to pay about 10 percent to 15 percent of the debt and find out how they react to your offer. Many creditors likely will refuse this, but they may settle for 30 percent to 50 percent. If they will not negotiate at all, you can ask them to remove the account if you pay in full. No matter what you end up agreeing to, make sure you get any "pay-for-deletion" terms in writing before you make a payment. According to the Federal Trade Commission, this procedure is legal, but the credit reporting agencies disapprove of it.
Sometimes, creditors place inaccurate information on your report. If this occurs, you have a legal right to dispute the account and have it taken off your report. Contact the creditor and ask for a copy of the debt if you receive an incorrect collection notice. If the account is already on your report, follow the dispute procedure for the credit reporting agency that has the information on file. This can usually be done online or by written correspondence.
Chris Brantley began writing professionally for a financial analysis firm in 1997. From 2000 to 2004, he worked as a financial advisor, specializing in retirement planning and earned his Series 7, Series 66 and insurance licenses. Brantley started his full-time writing career in 2012 and has written for a variety of financial websites, including insurance, real estate, loan and investment sites. He holds a Bachelor of Arts in English from the University of Georgia.