Can Bad Debt Be Removed From a Credit Report After Paying?

The national credit reporting bureaus warn consumers that it takes years for the federal credit reporting time limit to expire on negative items in a credit history, but consumers can delete accounts after paying them. However, a pay for deletion is not possible in all scenarios. When a deletion is not an option, the best choice may be to reduce the importance of a bad debt.

Considerations

Normally, the national credit reporting bureaus report written-down debt and collection accounts for seven years. Some debts, such as tax liens and levies, remain reportable indefinitely until the consumer pays the delinquent debt. However, paying bad debt can still help a credit score. Balances on collection accounts and civil judgments count against outstanding debt. The FICO scoring model, the most commonly used algorithm for credit scoring, gives a 30-percent weight to outstanding debt.

Tax Liens

The Internal Revenue Service revised its policy on tax liens and levies in 2011. Now, when a taxpayer satisfies his debt to the IRS, the agency withdraws the tax lien or levy from the public record, which makes the lien or levy non-reportable to the credit reporting bureaus. The IRS only agrees to withdraw a lien when the taxpayer pays the debt in full. The national credit bureaus can report settled tax liens and levies for up to seven years. However, the IRS will remove a lien or levy when the taxpayer agrees to an installment plan that will eventually satisfy the debt.

Negotiating Removal

The credit bureaus depend on creditors like banks and auto dealers for consumer data. Thus, a consumer can negotiate with a lender on how it will report the account to the credit bureaus. For example, a consumer may offer to repay a delinquent debt in full if the lender claims the account was an error. This tactic can work on any account, but lenders do not have to agree to delete record of the debt. Asking for a pay for deletion too early in negotiations can backfire too. For instance, the lender may surmise that the consumer has the ability to pay a debt in a pay for deletion scenario. The lender might file a lawsuit to obtain a garnishment of the debtor's bank account or wages without having to agree to delete the account history with the bureaus.

Tip

Even though you may not be able to remove a bad debt from your credit history, paying delinquent debt can still help your applications for credit. For instance, a creditor that manually reviews credit reports and sees a paid collection account considers that as adding to your trustworthiness as a borrower, because you voluntarily repaid the debt. You should also try to prevent bad debts in the first place. If you ever miss payments on an account, contact the lender about modifying the loan, such as setting up an installment agreement.