What Is a Paid in Full Letter & How Does It Work?

When you fully pay off a debt, a paid in full letter confirms the account is closed. You can send one to your creditor with your final payment. Or they can send one to you after receiving your last payment. Either way, the letter serves as proof that the debt is completely paid.

A paid in full letter protects you from future collection attempts. It creates a paper trail showing you fulfilled your obligation. You’ll have written evidence if the creditor tries to collect again later.

When Is a Debt Paid in Full?

A debt reaches paid in full status when you’ve paid the entire balance. The balance includes your original principal amount plus any interest charges. It also covers late fees, penalties, and other costs.

You can also achieve paid in full status through debt settlement. Unsecured debt like credit cards and personal loans qualifies for settlement. Settlement means you pay less than the full amount owed.

Creditors sometimes accept settlements because partial payment beats no payment. They know you could file bankruptcy and discharge the debt entirely. When negotiating a settlement, you can request specific credit reporting terms. Ask them to report the account as “paid in full” instead of “settled.”

Accounts marked as settled hurt your creditworthiness with future lenders. Lenders see settlement as a red flag about your ability to repay. They may charge you higher interest rates or deny your applications entirely. Getting a “paid in full” notation helps avoid these problems.

How Paying Off Debt Affects Your Credit Score

Paying off a debt typically boosts your credit score. But closing the account afterward can actually lower your score slightly. Closing accounts reduces your total available credit, which increases your credit utilization ratio.

The impact of paid collections varies by credit scoring model. Newer models like FICO 9 and VantageScore 3.0 and 4.0 ignore collections with zero balances. Older models still count these paid collections against your score.

Your account age also influences your credit score calculation. Closing older accounts shortens your credit history and can hurt your score. Keep paid accounts open when possible to maintain a longer credit history.

What Should You Include in a Paid in Full Letter?

Your paid in full letter should contain specific information for proper documentation. Start with the date and your complete contact information. Include your full name, address, phone number, and account number.

Add a clear statement that you’re making your final payment on the debt. Request written confirmation from the creditor that the debt is paid in full. Ask them to confirm they won’t pursue any further collection activities.

Sign the letter before sending it out. Review it carefully for accuracy and completeness. Make a copy for your records before mailing the original.

Send your letter by certified mail with return receipt requested. Our partner Solo can help you respond to debt collectors properly. Certified mail provides proof the creditor received your letter and payment.

Writing an Effective Paid in Full Letter

You can find paid in full letter templates online to guide your writing. Keep your language clear and professional throughout the letter. State the facts without emotion or unnecessary explanation.

Include your final payment with the letter when you mail it. Attach a check or money order for the exact amount owed. Never send cash through the mail for debt payments.

Keep copies of everything you send to the creditor. Save your certified mail receipt and the return receipt when it arrives. Store these documents with your other important financial records.

Reviewing Your Credit Report After Payment

Collection accounts damage your credit score significantly. Paying them off helps your score recover over time. The collection agency should notify the credit bureaus after you pay.

Credit bureaus usually update your report to show the paid status. But errors happen and your report may not reflect the payment. Check your credit report after paying off any collection account.

Look for other errors while reviewing your credit report. Inaccurate information can drag down your score unnecessarily. You have the right to dispute errors with the credit bureaus.

How to Dispute Credit Report Errors

You can dispute credit report errors with all three credit bureaus. File disputes online or by mail with Equifax, Experian, and TransUnion. Each bureau operates independently and maintains separate records.

Contact the information furnisher directly as an alternative approach. The furnisher is usually your original creditor or the collection agency. Banks, credit card issuers, and mortgage companies commonly furnish credit information.

Credit bureaus have 30 days to investigate your dispute after receiving it. They verify information with the furnisher and send you written results. You’ll receive a free credit report if the dispute changes your file.

Furnishers must also investigate disputes you file directly with them. They’ll report investigation results and provide a free credit report for changes. Creditors won’t remove accurate information even if you dispute it.

Check your credit report again after several months for updates. Contact the bureaus and furnisher if updates don’t appear. Verify they’re reporting your information correctly to all three bureaus. You can get a free credit report annually to monitor for inaccuracies.

Protecting Yourself After Paying Off Debt

A paid in full letter confirms you’ve fully satisfied your debt obligation. Either you or your creditor can write the letter. Your letter should request confirmation that the debt is paid and closed.

Always review your credit report after paying off collection accounts. Reporting errors sometimes prevent accounts from showing as paid. File a dispute to correct any inaccuracies on your credit reports.

Following these steps helps you build better credit over time. You’ll protect yourself from improper collection attempts. You’ll also ensure your credit report accurately reflects your financial responsibility.