Bad Credit Tip #2 - Settle For Less

This is an easy one that can help you to save hundreds, if not thousands when trying to clean up your credit. Before I get to the Bad Credit Repair Tip let me quickly explain how collections companies work.

Most collection companies will buy your debt from the original creditor for pennies on the dollar, hoping that their expertise in collecting will allow them to make a rather substantial profit if they are successful, and you pay in full.

Let's say that XYZ company had given you a loan for $1,000 and you were to repay the loan within one week. Well XYZ hasn't received a payment and it's now two months later. They forward your now delinquent account to their in house (if they have one, not all do) collection department, where they will try to collect. Now, another four months has passed and they haven't been able to collect, so XYZ company is now going to try to cut their losses and get paid whatever they can for that $1,000 from whoever is willing to pay them something.

In this case, ABC collections is glad to step up to the plate and pay $200 for your $1,000 debt in hopes that their far superior (sometimes they get big heads) collection skills will allow them to collect that $1,000 and gross an $800 profit.

Here's where you can save some money...Your ready to get a new loan for a car, house, credit card, etc. and realize to get the better rates it's time to clean up your credit. My suggestion is to try and settle for less.

Using the above example, you call ABC collection agency and tell them you'd like to settle your debt, but have let's say only $500 and that's all you can afford, would they agree to accept your $500 to settle your $1,000 debt. More often than not the bulk of these collection agencies will settle for less, and in this example would have pocketed a $300 profit plus their $200 initial investment.

Way to go!!! You just moved yourself one step closer to getting your credit restored and saved yourself $500 in the process. Don't forget to ask them to stop reporting to the credit bureaus. Read my post on removing these items Here

In the mean time...

Take care and beware,
J the Car Guy