CU wants old collections paid.... What should I do?

[Anonymous]

A year ago my scores were around 520, today they are around 650. I purchased my first home in March of this year. However, yesterday I went to my CU and applied for a car loan, I was told that I qualified for a rate of 7.5% but that I was denied because I have two collections and I would have to pay them in order to be approved. These two collections are the only negative items on my reports. I have tried PFD, but they will not do it. One account will fall of in 5 months and the other one in 3 years. Total owed is $700. What should I do? I know that if I pay them my score will drop. I don't understand, in March my scores were 625 and I was approved for a $300,000 mortgage but today with scores of 650 I am denied a car loan for $18,000.

[chasmith]

It's unusual to be able to close a mortgage with open collections on your CR, usually when your score qualifies for a mortgage the underwriter will still require that all collections be paid before allowing the mortgage to close.  This is part of the difference between automated review based just on scoring your report, and full manual review.

The problem is that saying you won't pay money you apparently agree you owe (you don't say these are disputed collections, just that you don't want to pay because doing so will lower your score) would cause me second thoughts if I were a potential lender.  What if you decide not to pay me?

So you can try talking with the CU about the situation (may be unwise as stated above), find another lender who won't require you to pay them, or, and this is probably the correct answer, pay the $700 based on a written loan commitment from the CU.  Yes you'll take a hit to score but  unless you need more credit in the next year  you're probably better off biting the bullet and cleaning these up.

[Anonymous]

I know that legally I owe this, but in all honesty I don't feel that I do. The one that falls off in a few months is a gas bill that my mom put in my name. I know that legally it can be removed but only if I press charges on my mom and I won't do that. The other collection is for a furniture purchase my ex and I made together. When we separated, he took the furniture, so no I don't feel i should pay for something that I don't have. Never the less, it's only $700. It's not about the money, as this is easily paid. But I don't feel that I owe it and then if I pay, my credit takes a hit. To me it's wrong no mater what.

[Anonymous]

I believe "You gotta pay to play" is appropriate here. It is common for a bank or CU to require you not to have any open collections before extending you a loan. I had to pay off 4 before I could get an auto loan with my CU. It didn't affect my score or approval and now my credit is better than ever with that paid on time auto loan reporting.