Your credit report has already been negatively affected by the bad debt. What is important now is that you make payments on your current debts on time, or even early when possible. Doing this will improve your credit score. Please understand that even if you pay that bad debt in full or in a reduced amount as part of a settlement agreement, that debt will not be removed from your credit report. It will simply be reflected on your credit report as a paid debt.
If you are not sure you owe the debt that is being reported on your credit report, you should dispute the debt with the debt collector reporting the debt and the consumer reporting agency through which you received your report.
The dispute letter to the debt collector should be sent to the mailing address provided on the consumer report. You need to identify the specific item of information that is in dispute and explain the basis for your dispute. You should also provide any supporting documentation that you have in your possession.
If you believe that you have already paid the debt, include a copy of the receipt or canceled check. If you have been the victim of identity theft, include a copy of an identity theft report filed with your local police department. Provide as much information as you can to explain why you don't believe you owe the debt.
In order to file a dispute with the consumer reporting agency (CRA), you will need to follow the instructions provided by the CRA for filing disputes. This information is available on the Web sites of the major consumer reporting agencies. Upon receipt of your dispute, the information on your consumer report must be marked as disputed and the debt collector reporting the information will have 30 days to investigate your dispute. Should it be determined that you do not owe the debt, the information being reported will need to be updated accordingly.
You should keep copies of all documentation sent to the debt collector as well as the CRA when disputing the debt. The Federal Trade Commission provides sample dispute letters on its Web site.