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You should always push for a Perfect Pay Rating. Your final goal in negotiating your credit rating is to get the creditor to list your credit rating after the settlement as "Paid as Agreed" or "Account Closed - Paid as Agreed". Anything other than this listing will have a negative effect on your credit report.
Creditors make their profits by collecting from their customers, not by reporting negative credit information. Because creditors recognize this "catch-22" situation, they will often agree to delete any negative listing upon settlement of the debt. You have to realize that creditors won't try to ruin your credit rating as a personal vendetta. It's strictly business. If it pays them to collect from you and restore your rating to perfect, they will do this. Talk to them in terms of money, not principals or morals. Something along the line of "I know you would love to receive the $3000 I owe you, but it will not help my credit report if you can't change my rating to 'Paid as Agreed'. All I have is $3000 and I will pay it to other creditors who will agree to change my credit rating in writing."
Collection agencies will always agree more readily to delete the negative listing than banks or credit cards. Why? They can change their rating, no problem, but you are still probably stuck with the original creditor reporting you late. And who cares if you have a "Paid As Agreed" collection account: no matter what the rating, every collection account is a negative mark. It's no skin off their nose to change it, and of no use to your credit.
You need to get the collection agency to agree to remove their listing entirely from your report and have the original creditor change the rating to "Paid As Agreed". At the very minimum, you are within your legal rights to demand the removal of the collection account from your report.
Some collection agencies will tell you they have no power over what the original creditor will do regarding your credit. To some extent, this is true. However, both the collection agency and the creditor want their money. If collection agency gets paid, so does the creditor, therefore it is to their advantage to cooperate. And baloney if they tell you they don't know how to get a hold of the original creditor: did the account magically appear on the collector's desk? No. The collection agency was hired. Explain to the collection agency if they can get a written agreement from the creditor, you will pay them their money, or you will pay a more cooperative creditor with the only money you have left, and they get nothing.
Remember, though, not all collections result from credit cards. Doctor's bills cannot appear on your report. But collections resulting from these accounts can. In the case of such collections, there is no duplicate negative listing, since the original creditor is not allowed to put a listing on your account, so this collection may legally remain on your report.
Many creditors, though, have an agreement with the credit bureaus that they will not allow a negative listing to be deleted upon settlement. While this is true, the creditor can just tell the credit bureau that they reported your rating inaccurately, not that it was due to settlement. Anything a creditor reports, a creditor can change. If this wasn't the case, creditors couldn't change erroneous information they may have placed on your account by mistake, and find themselves in trouble with the FTC. In most credit organizations, there are dozens of people with the authority to make changes on the credit report. Larger creditors, such as huge credit cards or banks will require more pressure before they will agree to delete a negative listing, but virtually every creditor will acquiesce with the right amount of persuasion.
If you have to accept an imperfect credit listing as part of your settlement.
You may find that some of your creditors are willing to hold out longer than you are before agreeing to delete the negative listing from your file. It may seem that they are unwilling to delete the negative listing under any circumstance. Once again, let it be said that every creditor will eventually give you what you want if you speak to the right person, are patient and persistent, and make the right offer. But if you are on a time-line, and your attorney can't get them to agree to full deletion, you have a couple of other options:
List the account as "Paid" only. You may counter-offer that the creditor list the account as "Paid" rather than delete it altogether. This is a true indication of the status of the account and many creditors will concede and agree to this wording. A "Paid" status is still very negative for a collection account or an account that will show "Paid Charge-off" or "Paid Repossession." You should insist that the account show "Paid" only and that all other negative notations (such as "Charge-off," "Repossession," late notations, or "Collection") are deleted at the same time. A simple "Paid" notation on a regular trade line is neutral and should not hurt your credit.
List the account as "Settled" only. You may counter-offer that the creditor simply list the account as "Settled" rather than delete it altogether. "Settled" is an inherently negative listing but not as negative as "Paid Charge-off." Don't agree to a "Settled" listing until you have exhausted all other possibilities. "Settled" will still trigger a credit denial. You should only agree that the account show "Settled" if all other negative notations (such as "Charge-off", "Repossession", late notations, and "Collection") are deleted at the same time. If you agree to a "Settled" notation, you must continue to work hard to delete the notation through the credit bureau dispute process.
List the account as "Paid Charge-off" or "Paid Collection" or "Paid was 30-, 60-, or 90-days late." This will be the creditor's first choice, and your last choice, of what to place on your credit report once you have paid. These notations are almost as damaging as showing the same debt unpaid. It is very common, though, for an account to be deleted (through credit bureau disputes) once it has been paid. The creditor now has no compelling reason to keep the negative listing on your report. For this reason, it is still usually a good idea to settle even if the creditor won't budge on deleting or positively modifying the negative listing.
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