Is paying off old debt bad for your credit??

CreditOCDinCali · ‎05-21-2015

I consulted with a loan officer about purchasing a home. She told me I could in about 6-12 months, but I had to pay off my collection's which I've been doing. My friend referred me to a credit specialist so I yelped the reviews and it sounds like a reputable place- many satisfied customers over a number of years. Well here's the deal. I called them up and he told me to immediately stop paying on my old debt, he said this would be very bad for my credit. I'm confused now. My loan officer suggested I pay off the collections, but this credit specialist is telling me not too... can anyone weigh in on this please.

gdale6 · ‎05-21-2015

@CreditOCDinCali wrote:
I consulted with a loan officer about purchasing a home. She told me I could in about 6-12 months, but I had to pay off my collection's which I've been doing. My friend referred me to a credit specialist so I yelped the reviews and it sounds like a reputable place- many satisfied customers over a number of years. Well here's the deal. I called them up and he told me to immediately stop paying on my old debt, he said this would be very bad for my credit. I'm confused now. My loan officer suggested I pay off the collections, but this credit specialist is telling me not too... can anyone weigh in on this please.

Any that are updating monthly you want to settle ASAP. Ones that have not updated in a while are sometimes better left alone until after the mortgage pulls are run. You want to try the PFD when you are looking to settle. What happens when they update monthly is it keeps your Fico score depressed and older collections that have not updated in awhile when they report it paid it drops your score. Same thing with the OC...

http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/PFD-Q-amp-A-Examples-and-PFD-Success-Stories/...

http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/PFD-Example-Letter/td-p/4519

RobertEG · ‎05-21-2015

A key aspect is whether the loan officer will require that any unpaid, deliqnuent debt be paid as a condition of final approval.

If so, you have no option.

I would consult the loan office for further details .......

Anonymous · ‎05-22-2015

It would be bad if you have a debt that is near/past the SOL then you make a payment and reset the clock on the SOL. Maybe that's what the credit specialist meant?

CreditOCDinCali · ‎05-22-2015

Thanks so much gdale6! Those forums really helped to explain further and also gave me insight on other issues!

Anonymous · ‎05-22-2015

@AhmedInVA wrote:
It would be bad if you have a debt that is near/past the SOL then you make a payment and reset the clock on the SOL. Maybe that's what the credit specialist meant?

No, the issue is as gdale described, paying older items can cause them to update and ding your score, if they have not updated in a while. The credit advisor may also be concerned with negotiating PFDs.

Anonymous · ‎05-22-2015

I would concur with RebertEG here - clarify with the LO whether the collection items "should" be paid or "must" be paid.