Many consumers erroneously believe that paying off or settling past due accounts will restore their damaged credit. It won’t–and the mistaken belief that it will creates a lot of confusion. “If I settle an account with a creditor for less than the full balance, can the creditor continue to report the account as past due? I paid the full settlement amount and the account balance is zero?” Jonathan Horn explained.

The New York City man thought the creditor would delete his negative bill paying history along with his account balance. But that’s not how it works. By law, the credit-reporting agency is only obligated to be complete. So if your file shows you made late payments to a specific creditor, it also has to show when it was settled or paid off. But it is not required to change the past and delete all references to the former delinquency.

The account is likely to remain on your credit report with any one of these notations: “Paid Charge-off,” “Paid Collection” or “Paid–was 30-, 60-, or 90-days late.” None of them will help your credit.
You can’t have notations removed if they’re accurate. But you can negotiate with the creditor or collection agency before you settle or pay off a past due account. In some cases, the creditor or debt collector may agree to delete the account from the credit report in return for full payment. Get any agreement in writing.

Even if a debt collector agrees to a deletion, you still have the original creditor to consider. Ideally, you get both the creditor and debt collector to agree to delete the account. Once an account is deleted, it’s as if the late payments never happened. That’s better than having a record of a paid collection account, which indicates you had credit problems in the past.

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