Paying off collection prior to closing or at closing

[Kimberly68]

Please give me your advice....I have 2 collections that I am able to take care of but am afraid because I dont want my scores to drop.  When speaking with my representative this is the advice I received. The question was should I pay the collections now or wait until closing.  1-collection is where I co-signed and the other is a tax lien.  Both are more than 2 years old. I am currently working with Veterans United and all seems well thus far, but have read some scary story here and other blogs.  

From representative:  I don't think paying either off will lower your score but there is a chance.  They have to be taken care of in order to move forward.  There is the possibility of paying at closing but having the outstanding balances makes getting things moving forward more difficult.  If paid at closing they have to source all the funds.  Makes things go smoother if paid beforehand.  

[dman23]

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@Kimberly68 wrote:

Please give me your advice....I have 2 collections that I am able to take care of but am afraid because I dont want my scores to drop.  When speaking with my representative this is the advice I received. The question was should I pay the collections now or wait until closing.  1-collection is where I co-signed and the other is a tax lien.  Both are more than 2 years old. I am currently working with Veterans United and all seems well thus far, but have read some scary story here and other blogs.  

From representative:  I don't think paying either off will lower your score but there is a chance.  They have to be taken care of in order to move forward.  There is the possibility of paying at closing but having the outstanding balances makes getting things moving forward more difficult.  If paid at closing they have to source all the funds.  Makes things go smoother if paid beforehand.  

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So you're afraid to pay 2 debts you owe because you're afraid your score will drop. Does that mean if your scores drop you won't pay what you owe? Doesn't make sense. I I was irresponsible with paying bills on time and and had a couple go to collections. I always eventually paid my debts in full. When it got to collections stage I immediately paid off my debt. I never settled on any debts as so many do. I used credit in good faith and would never "stiff" a creditor. Never wanted to consider myself a deadbeat. I've been at these forums since April and it's amazing how so many people are looking for tricks or trying to settle their debts for less than what is owed.

Sorry for the little rant.

I really started focusing on my credit credit and learning all I could about how it works and things you can do to improve your credit. I've learned a ton from these forums. I noticed on my credit reports that I had an account that was in the collections category. This debt was paid in full back in early 2010. I'm sure when it was first reported my score must have dropped a good amount. It dropped off on 2 of 3 credit bureau reports not too long ago. I actually just emailed the collection agency yesterday to see if they could remove the tradeline from my Experian report. I l did learn that the longer this is on my tradeline the less affect it has on my score so I don't think it's a big deal. I just don't like seeing it anymore.

I believe if you pay off both collections that it won't affect your score. It will appear on your reports for up to 7 years from date of first delinquency but at least it will show paid in full. Having a collection on your report that's paid in full won't prevent or necessarily hurt you in getting a mortgage. Trying to get a government backed loan (VA loan) when you owe the government (IRS) money can be a real problem. As your representative said, "They have to be taken care of before moving forward." I would pay them off. It can't hurt and can only help. Plus you don't want to blow off the IRS. The next thing after a lien is a levy where the IRS can garnish your wages, feeze bank accounts, seize asset, etc. You don't want to go there.

I hope this helps. Keep us posted as to what you did and how you made out.

[StartingOver10]

Pay the tax lien right away. Here is a thread I found about which form to use after you pay the lien to have it removed http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/Tax-Liens-Removed/m-p/2973894#M333565

I am assuming you are talking about a Federal Tax Lien. For a state tax lien you would have to check your options.

For the collection account - see if you can do a PFD. As long as you have proof of payment for the underwriter a pfd will help you and not hurt your score.

[Kimberly68]

Thank you Startingover...it's a GA State Tax Lien that I wasn't aware because my spouse and I separated and we moved and unfortuantely the mail didn't forward.  dman23--my post stated I am able to take care of the collections.  1 of the collection is where I co-signed and for a person who was very good in paying their bills however got caught in the "recession" and other major issues and the company refused to work with her.  We have since lost contact and it is on my credit and I am willing to settle the debt--doesn't make a deadbeat.  As stated--the tax lien was due to my relocating.  Never had a problem with mail forwarding and being retired military I have moved many times so, this is the first, but again, I am in Georegia.  I do have the funds available to settle, I just didn't want my credit score to take a hit where I have read on many threads they have after paying the debt.   I have seen where many have paid collections at closing to avoid the scores from dropping I am only asking if anyone here experienced this.  Thank you each for your response. 

[justrock]

I paid off two six year old collections and my score didn't change one bit.  Both were removed altogether from Transunion and Equifax, Experian removed one of them.   Still my score didn't change one point in either direction.

[kjel]

Depends on how old they are. I had a 2009 charge off that I settled and my score dropped 20 points. Not because I paid it but because FICO detected activity on the TL. Once it updated to paid, the points came back.

[dman23]

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@Kimberly68 wrote:

Thank you Startingover...it's a GA State Tax Lien that I wasn't aware because my spouse and I separated and we moved and unfortuantely the mail didn't forward.  dman23--my post stated I am able to take care of the collections.  1 of the collection is where I co-signed and for a person who was very good in paying their bills however got caught in the "recession" and other major issues and the company refused to work with her.  We have since lost contact and it is on my credit and I am willing to settle the debt--doesn't make a deadbeat.  As stated--the tax lien was due to my relocating.  Never had a problem with mail forwarding and being retired military I have moved many times so, this is the first, but again, I am in Georegia.  I do have the funds available to settle, I just didn't want my credit score to take a hit where I have read on many threads they have after paying the debt.   I have seen where many have paid collections at closing to avoid the scores from dropping I am only asking if anyone here experienced this.  Thank you each for your response. 

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Kimberly...Now that you gave more details I can see how you weren't aware of the collections. I wasn't implying that you were a deadbeat. My apologies if it came out that way. After reading a lot of other posts before yours I was just  annoyed at how many people are looking for a quick fix to their credit and looking or settling debts for less than what they owe. As I mentioned, I've been in collections and had opportunities to settle for less than what I owed but I would never consider that.

Again, I apologize. And sorry I didn't have any experiences of paying collection costs at closing to avoid a score drop so as to give you any advice.

I hope everything works out. I'm sure it will.

[TimeToRecover]

My advice find the lender you want to work with and they would be best to tellyou what you need to do. Pay it before, pay it at closing etc.  I am also in GA.  I have found a mortgage banker that I really am enjoying working with.  if you would like the information PM me.