A debt paid in full letter informs your creditor that this is your last payment, and it requests an acknowledgment from the collector.
- A “paid in full” letter gives notice to your creditor that this is your last installment
- It doesn’t usually help your credit score immediately
This letter should include a statement that you fully paid your debt, that you want written acknowledgment from the collection agency, and that they should not take any further action against you. Keep a copy in your records with any other documents associated with the account in case the collector persists.
What is a Paid in Full Letter?
A “paid in full” letter states that you finished payments, and you want acknowledgment from the collector that they agree and won’t continue collection efforts. It serves three purposes. It states:
- You understand that this is your final payment
- A request that the collector responds with a written “settled in full” document
- That you will take legal action if they continue to try to collect from you
Before you write this letter, go back to your original agreement and make sure that you honored everything included in the deal. If everything is in order, then send the letter with your last payment.
When is a Debt Paid in Full?
A debt is paid in full when you complete the payments for the total amount owed. It is different from settled in full, which is when you completed an agreed-upon amount that is less than the entire balance.1
Paid in Full
Paid in full means you repaid the entire loan. This includes:
- The entire principal amount
- All interest charges
- Any penalties and/or fees associated with the account
This means your account is in good standing. It remains on your reports for 10 years. The bureaus still note any delinquent payments for seven years from the date of the missed payment(s).
Settled in Full
Settled in full means you repaid the entire balance of an agreement that lets you pay less than the entire amount of the debt you owe. This means the collector agreed to one or more of the following:
- Reduce the principal amount
- Reduce or eliminate interest charges
- Eliminate or reduce associate penalties and fees
This eliminates your debt, and you will not continue to make payments, but it will hurt your credit scores. Because you didn’t pay your debt completely the bureaus mark the debt “settled in full” or “paid as settled.” This negative mark stays on your record for seven years.
Paid in Full Letter Example
This is a sample letter from Credit Magic that includes all the elements of a good letter.2
Phone # __________
Collection agency Name _________________
Collection agency Address ________________
Dear Sir or Madam,
Re: Account Number ______________________
Please find my enclosed final payment for the above-referenced account. I am requesting a written confirmation showing this account as [paid in full or settled] as per our agreement on [date of agreement]. If you don’t provide me with a written confirmation, I will use the receipt of this final payment as proof that you accept the above-referenced account as [paid in full or settled].
Since the debt has been paid in full, I do not expect to hear from you, except to confirm the account is paid in full. I will regard any other communication from you or your agency as harassment and will report it to my State’s Attorney General and to the Federal Trade Commission (FTC) immediately, and if required take the necessary legal action to protect myself. Finally, I expect you to delete this account and my personal information from your records.
Your Signature ________________
Your Name ___________________
Will a Paid in Full Collection Help my Credit Score?
A “paid in full” collection may help your score some, but it probably won’t help much and may not help at all. Newer scoring models ignore collections with a zero balance, but older ones do not.
- FICO 9 and VantageScore 3.0 and 4.0 ignore zero balance accounts
- Older models do not ignore zero balances
Some lenders use the newer models, and some use the older ones. Lenders for secured loans, such as mortgages, often use the older models.
As the delinquency gets older it becomes less significant, so newer data is more important than older. After seven years they disappear from your reports.3
It is not easy to get a collection removed from your report, but it is possible if you either settled the account or the report entry is inaccurate.
- A goodwill letter does work sometimes
- You can dispute inaccuracies and get them removed
Bettercredit.org has a step-by-step guide for how to go about getting collectors to remove entries on your report. Whether this works depends on your situation. If the entry is inaccurate, they will change it. If you really are delinquent your chances may not be good that they will remove it.4
Credit Score Increase When Collection Account Removed
If you can get a delinquent entry removed it will greatly improve your credit score. It often improves your score by 100 points, sometimes even more. This is because late payments count for 35%. It’s the largest single percentage of any item the bureaus consider. Remember, though, that paying it is not enough. That only stops further damage to your score. You must get your creditor to remove to significantly improve your score.
Why Did My Credit Score Drop?
Credit scores often drop when you pay off a collection. It may seem wrong, but it makes sense if you look at how it happens.
- Payment history: 35% – doesn’t improve because creditors don’t remove the delinquent entry
- Credit utilization: 30% – falls if you close the account
- Length of history: 15% – falls if you close the account
- Credit mix: 10% – falls if you close the account
- New credit: 10% – Shouldn’t change
Your creditor closes many types of loans upon completion. These include mortgages, medical bills, student loans, etc. Revolving accounts, like credit cards, you can keep open. If you can bring your balance to zero on a credit card and keep it open this will damage your credit less than closing it completely. Also, don’t hurt yourself by opening any new accounts. This will damage your score, too.6
Final Thoughts Debt Paid in Full Letter
First, if you are ready for a paid in full letter, congratulations on taking an important step in controlling your finances. This letter is an important part of your records, so make sure you make a copy for yourself and keep it with other documents associated with the account.
Collection agencies sell accounts, and they don’t always keep accurate records. If you keep your original bill or your settlement agreement together with your canceled checks and paid in full letter, then you can stop any further actions and maybe even get damages if they break the law.
It probably won’t improve your credit scores immediately, but over time keeping your accounts current will. It takes time, up to seven years, but old delinquencies get less important and eventually fall away. New habits of not spending too much or neglecting to pay on time will pay benefits.