Rebuilding Your Credit

[PRChicaDificil]

Hi there.

Might you share with me the who are the experts you are speaking of in your post?  I really need some serious help... i go up 7 points one day and the following week I'm down 10.  I really want to buy a home eventually but it seems like with my credit - its never going to happen!!!

Thanks so much,

Li

[cdinc1]

Paying off collections will raise your score depending on the amount of collections reporting to your file.

EX:

If you only had one collection and pay it off, your score will initially drop due to that collection re-reporting as being paid. But, your score will rebuild faster. 

Reason: Unpaid bills looks like revolving debt on your file. In other words, it looks like you have "maxed" out a credit card.

EX: You can get an installment loan for $10,000 and your score may drop 5 points.

If you max out a $200 credit card, if could drop your score up to 60 points.

Most collections can be negociated down to 40-60% of original balace except medical bills. 

[utrtmt1022]

Will paying off credit cards raise your scoree significantly? I owe 399 on a 1000 loan, I owe this for another 3 months, if I pay it off now will it raise my score?

[Timothy]

Paying off credit cards- Yes it increases your score-

Paying off installment loans generaly does not have any significant change in score (unless it is your only one and may cause a small drop)

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utrtmt1022 wrote:

Will paying off credit cards raise your scoree significantly? I owe 399 on a 1000 loan, I owe this for another 3 months, if I pay it off now will it raise my score?

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[mattymule]

Hi I am new to the forum and wanted to offer some information pertainting to this question.  The truth is yes and no.  Paying off a collection doesn't guarantee a increase in score.  If you have a collection reporting on all three bureau's and you pay it to zero, your score may go up on Equifax but stay the same on Experian and Transunion or any combination, or it could stay the same on all three or your score could go up on all three bureau's (however I have yet to see the latter scenario happen).  Also it is important to remember that once you pay off the collection that does not necessarily mean it will be deleted from your credit.  Most likely not.  Some and I should say a few collection agencies will delete the collection from your credit however make sure you ask them this question and get them to fax your something in writing that it will permanently be deleted.  The mass majority of collection agencies will NOT delete a collection from your report.  You have to wait the 7-10 years for them to fall off your credit and that will most likely still take work on your part.  My advice would be if you have access to a what if simulator that is the absolute best and easiest means of determining which collection you pay off will affect your score and what capacity it will affect it.  They are about 85-90% accurate.  Having access to this simulator which allows you to work on your credit simulating paying off different collections, it will show you the increase to your score or decrease in some cases.  In most cases paying off the collections has done nothing to my score, however there have been a few that have made a huge difference.  One in fact, a collection to Verizon that I paid off raised my transunion 40 points but did nothing to my Exper. or Equif.  So you can see it can help in some instances but not in others.  A good rule of thumb is pay off every collection you can, try to settle with the collection agency because for credit score purposes the bureau's do not care if settle for less than the amount owed, if there is a zero in the balance that is all that matters when it comes to scoring.  I am sure most if you already know all of this but if it helped someone in the forum I am glad I could do so. 

[lisaletostak]

my scores are in the 590s-620s between the 3 credit bureaus. i owe about $3500 for a student loan through the state (Ohio) and $900 left on a cc, both in collections and both will be paid off within a few months. other than that i have a federal student loan which is about $16k but is in good standing and i am in school so it is in deferment for the next several years. i have been paying off the 2 collections accounts for a few months now and they are valid. can i call and ask them to take the accounts off my report once they are paid (and get that in writing)? will they laugh at me? can i say i can pay it off faster and use that as leverage since i am already paying it? i want to get a mortgage in about 1-1.5 years and am trying to rebuild my credit as much as possible before then. any advice is appreciated thank you!

[princesswarrior]

well i click my ruby red shoes and say "there is a God, there is a God" but other than that, no.  If I were younger I would devote the rest of my life to fighting the inequities in this system.  If an educated, financed, connected person can't figure this out, what about the every day jack or jill who have to pay throught the nose for EVERYTHING b/c of their credit score (which may be totally inaccurate.) This effects your job, your auto insurance, mortgage, car loans, medical and life insurance and who knows what else they'll throw in?  The ability to bear children like the chinese?  This billyclub they use can knock you down and OUT before you can even protest.

Kinda like a new Boston Tea Party I think.  Can we not collectively do something?

[MetalKing]

From my experience, paying off collections does not increase the score, unless the collection agency agrees to remove the record completely which is rare. This is one bargaining chip to use when paying off an account. There are intangibles though. When I sat down with my mortgage broker a while back, he said that collection accounts the show a balance are pretty bad. Paying them off and then providing an explanation to a creditor can help swing a loan your way. So it is best to pay them off and then provide an explanation.

[pjmeyer38]

Hi, This is great information. A previous poster said that he/she got specific help on this site. Can someone please tell me how to go about getting some personalized help?

[drdoolittle]

I can offer some very personal experience for you to semi-answer your question. If the negative information is DELETED, then yes you will see an increase in your score. Unfortunately, that is not always the case.

I had a collection agency hounding me for months to pay a collection (which was BS in the first place, but that's a completely different story!) I put them off, avoided their calls, but eventually caved and came to a settlement agreement. I asked them to assure me that once I paid the amount they requested, they would delete the item from my 3 bureaus. They said they would report "accordingly." That's corporate speak for we'll stick it to you every way we can!

I settled on an amount to the tune of several thousand dollars, but when it came time to delete the item, they became the ones who avoided my calls and didn't return my messages. They reported to the credit bureaus that the collection was "Paid in Full" but was "Settled for less than the original amount." This has almost the same (if not worse) devastating effect on your credit as the original mark because it shows future lenders that not only did you have a collection, but you only paid a fraction of the debt. The bottom line is that the item wasn't deleted and was still affecting my score!

So my credit score didn't improve AND I was out a couple G's. I'm a huge advocate of keeping my payments current and not getting into that situation again, but I think you'll find that unless you get it IN WRITING that the item will be DELETED, you're better off riding it out and keeping the money in your checking account rather then paying the collectors. They are under no obligation to delete an item even after it is paid and can leave it on your report for up to 7 (and sometimes 10) years. If it's going to be on there anyway, wouldn't you rather be the one holding the money!?!

If I had to do it again, I'd wait it out or get a definitive answer (again, in writing) from the collectors that the item will TRULY disappear.