Should I pay off collection accounts that are still reporting?

[Anonymous]

I'm in the process of purchasing a home later this year / early next year and I've talked to different lenders, all with different opinions.

I have three collections accounts on my credit report. I have the money to pay them off (one is $178, one if $675 but will settle for $518, the other is about $1,500) but I've heard it's best to not pay collections accounts as it will hurt my credit and restart the SOL. I've also heard that if the collection account is still reporting frequently it's better to just pay it off. According to Credit Karma two of the three accounts have reported to credit bureaus recently (March 2016). 

What should I do....should I pay them off or should I leave them be? Thanks!

[RobertEG]

If you pay a debt, then there can be no reset of teh SOL.

There is no longer any debt to form the basis for any civil action, and thus SOL is moot.

As for credti scoring, whenever a debt collector reports an update, it is a statement of the current status.

If the update still shows an open collection with a balance,that is an affirmative statement that the debt remains unpaid, and thus is appropriately considered by FICO as a reporting that the debt remans, and has become increasingly, delinquent.  FICO considers that relevant, and it can affect scoring.

Reporting the debt as paid similary is a postive statement that, up to that point, the debt was delinquent, but now it is paid.

That reporting removes, via update of the collection as open with a balance, from any subsequent updates that will further be scored by FICO based on continued and extended default on the debt.  Paying then permits the collection to begin reduction in its scoring impact.

If a debt collector is not making regular updates, FICO is not advised on extended default, and does not update until they receive a reporting update.

[RobertEG]

Does translation of "Dont pay (yet)" mean "Dont pay without first consulting with/hiring my credit repair organization"?

[Anonymous]

It depends.  Do some research on the companies here and see what has worked (or hasn't) for others in regards to getting them removed. Some might have been able to dispute them with the CRAs, while others might have got a PFD or had to settle for a paid in full.

Personally, I do not live by the logic that paying off a collection will ALWAYS decrease your score.  Sometimes, collection balances can affect your utilization and by paying them off your overall util will decrease which will increase your FICO score.

BTW, please do not pay a credit repair agency.  You can do the same work on your own and it will help you become much more conscious about your use of credit in the future. 

[Anonymous]

So I have been speaking to a lot of lenders as well. We have started paying off collections and so far the scores have gone up about 10 points.

Hands down DO NOT SETTLE inless you already have a letter in hand stating they will put "paid in full" on the credit report.

From what I have been told if they put settled for less than orginal balance pretty much your screwed. I have had six different lenders tell me this.

You really need to find a good lender who will sit down and work with you.  Some lenders can get you a pre approval or approval with conditions.  So

you could possibly wait to pay the collections but they will need to paid before closing.  That with be your conditions.  

Also a heads up if you just call around to mortgage lenders they will just tell you pay them all off now.  If you actually get someone good they will ask

you how much is the debt, what kind of debt, etc.  Then be willing to work with you.  Good Luck!