Old Collections...Pay Them Off?

Old Collections... Pay Them Off?

By: Lee Kendrick

You should always try to pay your debts in a timely manner, so that you don't end up with collections and/or charge-offs appearing in your credit profiles.

However, if you are typical & among the majority of Americans, you'll have at least 1 collection account (erroneous or not) appearing in your credit profile. And, eventually, it'll be recommended that you payoff that old collection account. Before you do this, let's cover the "pros & cons" of this action.

First of all, I must provide you with the legal and politically correct answer... that paying off collection & charged off accounts will improve our overall credit rating... and this is true... for a LONG-TERM approach. However, if you're in the midst of applying for any type of loan... especially a mortgage loan... it's always best that you attempt to have the account deleted on the basis of any inaccuracy, incompleteness or unverifiability.

Secondly, failing in your attempt to have the account(s) deleted using the Fair Credit Reporting Act... you could negotiate a partial of full payoff of the account... as long as the creditor or collection agency provides you (IN ADVANCE) with a written agreement stating their willingness to PERMANENTLY DELETE the account from ALL 3 credit reporting agencies... once they've received the agreed payment amount.

Lastly, as a worst case scenario... failing to have the account deleted... most lenders recognize that any payment toward an old collection account will change the "date of last activity" to a more recent date... which will usually cause your credit scores to drop. Your "date of activity" (aka DLA) can be changed to a more recent date if you dispute the account, contact the creditor, the creditor contacts you, a payment is made, etc.

The mathematical algorithms, scoring models & computers used by the credit reporting agencies... unfortunately... "think" that you have a NEW credit problem with a more recent date of last activity... even if the account balance is now reporting as zero owed... because the words "collection", "charge off", "reposession", "foreclosure", etc. NEVER GO AWAY! This is typically referred to as the "reporting clock"... which can remain on your credit report for up to 7 years + 6 months from the date of last activity. Tax liens and bankruptcies can remain on your credit report for longer periods of time.

I'm hoping you realize the importance of negotiating to have the account deleted, before paying any monies toward any old "negative or derogatory" account(s).

And, if your credit scores drop, you may be denied for your loan request.

It's always best to order copies of your credit reports at least 45-90 days in advance of any anticipated loan requests... to insure the overall accuracy of your credit report information. Many borrowers with great credit... unfortunately... have found out that they've become the victims of identity theft... AFTER they've already made large deposits for the purchase of homes... which can be embarrassing & frustrating. It's also recommended that you order a free credit report from each of the 3 major credit reporting agencies (Equifax, Experian & TransUnion) at the beginning of each year... keeping your more informed about your overall credit rating.

There are also numerous internet services that offer to monitor your credit inquiries, scores & payment histories, but we recommend that you only use the services offered by the credit reporting agencies... to protect you from unscrupulous vendors... as these vendors may be identity thieves in disguise.

Family Mortgage in Winchester Kentucky (http://www.fmiusa.com) has a new computer program that will recommend steps for your overall credit score improvement... and this tool is offered by their credit report provider. It (specifically) offers advice to be completed in a specific step-by-step manner to improve your credit scores... to whatever score you're trying to achieve.

In some cases, paying down credit card balances may be required. In other cases, simply opening a $300 credit card account may be what's recommended. This service only costs $15 per client, and the reports are provided to you within minutes.

This service is not to be mistaken for credit repair, but it can give you ideas on what should be concentrated on first & foremost.



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