How to Negotiate and Pay Off the Key Derogatory on Credit Report

Key derogatory entries on your credit report are negative marks that will remain for seven to 10 years. Items such as charge-offs, collections and foreclosures are reported for seven years. Bankruptcies are reported for 10 years. You can pay off delinquent accounts through a process called debt settlement, which allows you to pay less than the full balance. The New York Times reported in January 2009 at the height of the financial crisis that some credit card companies were settling debts for as little as 20 percent of the balance, but a range of 30 to 70 percent is more typical.

Instructions

1

Obtain a free copy of your credit report from the AnnualCreditReport website or call 877-322-8228. The website is the only Internet site authorized by the government to offer completely free reports. Other sites with similar names may offer a free report but also try to sell you other services.

2

Find the key derogatory on your credit report. Note that bankruptcies and foreclosures cannot be paid off. However, you can address other old debts such as charge-offs and collection items. According to the Federal Trade Commission, charge-offs are accounts that the creditor closed after you stopped making payments; collection items are charge-offs sold to collection agencies.

3

Contact the creditor or debt collection company by telephone or mail. Offer to resolve the debt by paying 20 percent of the balance. Continue negotiating until you have an agreement. Prepare to have several discussions or make multiple counteroffers. Increase your offer in small increments, say 5 percent, each time you counter. Be prepared to offer more for newer accounts. Older debts will eventually drop off your credit report, and the statute of limitations for collection will expire, so the creditor may be more open to accepting a smaller payoff.

4

Get the terms of the settlement offer in writing and send all correspondence by certified mail. The agreement should stipulate that the creditor is accepting your payment and will recognize the account as paid in full and the debt cannot be sold to other collectors. Then send in your payment. Paying the debt will not improve your credit score initially. The entry on your report will be updated to indicate that the account was "settled for less than the full balance," which is also considered a key derogatory and will remain on your record for seven years from the date of payment.