Question on the Impact of Collections on My Credit Score

[ladybug72]

I'm trying to qualify for a home loan and I'm working with a lender to improve my credit score. Right now, it is 611, which is enough to qualify for an FHA, but at a lower amount. If I can get it over 640, I can either qualify for a USDA or a higher loan amount with FHA. I know I can pay down my credit card balances and it will help some, but I don't think it will put me where I need to be. My question is what kind of impact my old collections are having on my credit. Two are from Midland and one is from Calvary Portfolio. They are several years old, about five years I think, but they are updated monthly with increases due to interest. Will that have a bigger impact on my credit than if they were just reported once like most collections accounts are? Also, I know Midland won't do a PFD, but does anyone know if Calvary will or if they will accept a lesser amount with a PFD.

Also, will paying it off help my credit score because they won't be updating it anymore? I know marking an account as paid won't impact it but I thought that not having i reported monthly might help my cause in time.

Any help is appreciated.

[Anonymous]

The only way to definitively answer your question is to try it and see.

In MY experience paying off a collection provided a drastic increase to my FICO 08 score. I did not monitor how it affected my mortgage scores. 

My mortgage broker advised me that reducing the balances on 2 of my cards to $0 and one below $100 would yield a 19pt bump (according to their calculator). She said it was not 100% accurate, but was usually fairly close. I'm unable to apply until January due to items that preclude an FHA mortgage until then, but she was able to give good guidance on how to be in the best position possible. Had I been able to apply earlier, her bank offers rapid rescore, at no cost to me.

As far as mortgages, paid (even if settled) collections are better than collections with balances. Just because it doesn't hamper your score doesn't mean it won't trip you up in underwriting.

Best suggestion would be to start working with a broker who can give you the advice you need and do a rapid rescore if it will help. It's better to have a few extra credit from a mortgage broker while preparing than to be in the dark. 

[Anonymous]

Also, I have had zero luck with Cavalry on a PFD. They did offer a very nice settlement, though. 

[Anonymous]

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@ladybug72 wrote:

I'm trying to qualify for a home loan and I'm working with a lender to improve my credit score. Right now, it is 611, which is enough to qualify for an FHA, but at a lower amount. If I can get it over 640, I can either qualify for a USDA or a higher loan amount with FHA. I know I can pay down my credit card balances and it will help some, but I don't think it will put me where I need to be. My question is what kind of impact my old collections are having on my credit. Two are from Midland and one is from Calvary Portfolio. They are several years old, about five years I think, but they are updated monthly with increases due to interest. Will that have a bigger impact on my credit than if they were just reported once like most collections accounts are? Also, I know Midland won't do a PFD, but does anyone know if Calvary will or if they will accept a lesser amount with a PFD.

Also, will paying it off help my credit score because they won't be updating it anymore? I know marking an account as paid won't impact it but I thought that not having i reported monthly might help my cause in time.

Any help is appreciated.

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What are your current balances and credit card limits? Do you have an installment loan?