Collection accounts reporting as past due-

[bonddiva07]

Okay,  So I am in the process of rebuilding my credit and all of my accounts have been paid on time for the the past 1 1/2 years.  The only things that have been left alone are the 3 accounts that are in collections that happened about 3-4 years ago.  I have read on these boards and in books that paying these collections off will not help my score since they will stay on my report for the the next few years and eventually as time passes they will have less of an effect on my score.  But when I look at what is hurting my FICO, it reports that I have 3 accounts that are past due which are the ones in collections.

So basically every month these CA are reporting my account as past due and not as a straight collection account which is in turn showing up as a delinquent account.  Should I just pay them off so it doesn't keep showing recent delinquencies every month?  HELP...I am between a rock and a hard place?

[Anonymous]

bonddiva07,

If it's a CA reporting, then it's being reported as a collection. Doesn't matter if you owe a $1 or a $1 million. It's still a collection. Pay it, and it's a paid collection. Paying a collection won't help your FICO score. Might climb 10-20 points, if that.

So what is the rock and the hard place? Are you trying to buy a car or home? Are the CAs calling and threatening you? Have you been served with a summons?

More details are needed. You'll wanna know when the SOL has run. If you don't know, what state are you in and what type of accounts are these? Credit card, promissory note, car loan, etc.?

You'll find a mix of opinions in here, but I know from experience that little good comes from paying a collection. I can direct you to lots of other folks who learned that painful lesson the hard way. I can also point you to folks who've negotiated PFDs (Pay For Deletes) and gotten them.

[bonddiva07]

Thanks, for the insight.  I am looking to purchase a home in the next 6 - 8 months.  I was told about a year ago from one mortgage company that my collection accounts need to be paid off before I start making moves to get a mortgage loan.  Since then I have been focused on paying things off.  The last thing I want to do is leave these outstanding collection accounts alone just because paying them off won't have much effect in raising my FICO.  Also I have been told that paying them off can make them appear more recent than they are which can in turn cause my score to go down by a few points.  One of these accounts is a credit card account, one is a utility bill, and one is a cell phone bill.  They only total about $2100, do you think it's in my best interest just to pay them off and get the 10-15 point boost as opposed to leaving them alone?

[Anonymous]

Have any mortgage brokers or lenders already pulled your credit report? If not, don't let them. As soon as the collectors see mortgage pulls, they'll know you're shopping for a mortgage and they will demand full payment offering nothing in return. So make sure you don't tell the collectors you're house hunting when negotiating with them.

Most prime lenders are going to require anything in collection or charge off to be paid. Subprimes might or might not care. Of course, with subprime you won't get as good an interest rate, but if you're already in subprime territory and not likely to climb out of it in 6-8 months then paying your collections should go to the bottom of the list.

Talk to the mortgage broker, and I strongly suggest a mortgage broker over a bank. The broker can offer you way more options. Ask them whether an account that appears as "settled for less than the full amount" as satisfying the debt. Some don't care about a settled. Others might.

Depends on how old the collections accounts are. If you're out from under the SOL, then you're going to have a lot more negotiating power. You need to know the DOFD on your collections. Usually that's when the account when 120 days late. If any of these accounts is really old, then getting them deleted off your reports (without costing you a dime) might be easy.

Do you know where your FICO scores are today?

Can you afford to pay the whole $2100 today in full? If so, then a PFD (Pay For Delete) where you pay the whole $2100 is a better deal. A PFD for $1600 is a better deal still. A PFD for $1100 might be the best deal possible, but folks have done this and more in negotiations.

[Boswd]

I can't believe I am saying this but I agree with Noah.    Overall if you are looking to buy a house, these will have to be resolved.   You should resolve them just for your own piece of mind anyhow and get back on being as debt free as possible. 

One suggestion is to print out all three of your credit reports and bring them to either a mortgage broker (that way they won't pull up a hit on your CR) or your own bank where you have your checking and savings account and talk to them on what to do and what they are going to require.   In the end game you are going to want to qualify for a prime loan from a prime lender.   Besides with the latest developments in the sub prime real estate market  even they are going to tighten their restrictions due to foreclosure's on their loans that seems to be sweeping the nation.  

Now $2,100 doesn't sound too bad.   If you can pay them off in one fall swoop that would be great.  But if it is going to take a while and just clearing these up is the only thing that is holding you back from qualifying from a prime lender than putting the house hunting on hold for a bit could save you thousands of dollars than from going to a sub prime lender,  but of course if you have to go to a sub prime overall then you have to do what you have to do.

[Anonymous]

As Boswd said, bring a printout to your mortgage broker. Any good broker can take paper copies of all three, MyFico printouts, TrueCredit printouts, or most any 3-in-1 reports, even without FICO scores, and give you an assessment of your situation, where you are today, where you could be, and get you darned close to the APR you'd qualify for if you applied--at least using the mortgage products available today.

If the broker won't, and insists on pulling your reports hisself or herself, get yourself a different broker. PM me if you like. I can point you to one who's willing to help you if he can.

If you're in subprime territory today, then a paid collection ain't gonna get you into prime. But a PFD just might. A subprime lender likely won't require you to pay it, so you're better off spending that money on closing costs, downpayment, paying down CC util, or contributing it to the X months of salary in savings they might want.

If you're already in prime territory today, then a paid collection ain't gonna adversely affect you, but it won't help you either. Lender is gonna require you to pay it before closing, but if you start working on a PFD now then you've got plenty o' time to try and get a PFD. Push comes to shove, if it don't work and you cannot get the PFD, Big Freaky Deal. You pay it, take the paid collection and still get the mortgage. You're no worse for wear. Only thing you've lost is a little time and some postage. Small cost, big payout, and far better odds than either Vegas or the Lottery.

Either way, it's well worth it for you to start pursuing a PFD.