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Should I Pay Off Collections

Should I Pay Off Collections?

This exact question is probably one of my frequently asked questions with regards to credit and credit scores. A friend of mine, a mutual mortgage originator, instructed his borrower to pay off some collections on his credit report without proper knowledge of how credit scoring works and what impact it would truly make. The borrowers middle credit score, the credit score used among lenders, was 644 and collections totaled roughly $3,500.

The borrower paid off the collection, but when they re-pulled the credit report again, the score DROPPED from its current 644 credit score to a credit score below 620!

So how did this happen? Could that $3,500 be used for a better purpose?

3 Reasons Why You Should NOT Pay Off Collections

  1. Paying collections only re-ages the debt – It zeroes out the account (which helps the DTI) but it makes it look like it’s now a brand new collection, thus dropping the score.
  2. It’s no longer your debt – The person who owns the debt now doesn’t have a direct contract with the individual, yet when they post on the credit report, they are claiming that they do and can legally verify it. They are lying and breaking the law. The original company voided the contract when they sold it for 10-15 cents on the dollar, they reported it as a loss, and now can’t legally collect on the debt either. So really, you don’t owe anything to anyone anymore.
  3. If a collection is paid, it doesn’t stop it from being sold again to another collection company – Many times, I’ve seen duplicated debts on credit reports that the client already paid it off. Collection companies are notorious for settling with clients and quickly selling the debt off to another company to collect just a bit more!

What To Do Instead of Paying Off Collections

  1. Re-establish new credit – Without establishing new credit to replace older negative derogatory credit, your credit score can never increase because there is no new information to report to the bureaus to show financial responsibility. The type of credit that will make the biggest impact here would be revolving accounts, accounts like credit cards. Credit cards, or revolving accounts, demonstrates you have the ability to have access to credit while being responsible enough to use it conservatively if you only keep a balance of at least 33% or less than the credit limit.
  2. Credit repair – Credit repair can be a great alternative and usually cost much less than paying off collections. Credit repair companies will systematically argue the validity of items reported on your credit report to have them removed and improve your overall credit profile.

With over a decade of experience helping consumers with less than perfect credit to put themselves in the best position to obtain a mortgage approval, I have assisted thousands of clients to repair and improve their credit and over that time have aligned myself with the some of the best credit repair companies to improve your credit ratings.


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