Collections debt question

[tryingtoimprove]

I have been reading several posts about trying to pay off accounts that are in collections and I just want to make sure I have a good game plan.  Any help would be appreciated.

I have several accounts in collections dating from 2004-2006.  I sadly let my ex-wife handle all the bills and did not take an interest in them at all.  She obviously did not pay several accounts that were in my name and now I am suffering the consequences.  I am trying to turn everything around and rebuild my life and my credit along with it so I am just trying to figure out the best course of action.

My question is this - should I contact all of these collection agencies and try to make a deal with them that if I pay the balance that they will remove the information from my credit history or should I just leave it alone and hope they don't try to collect since the balances are relatively small?

I sincerely want to rebuild my credit but just don't know if I would be opening a whole other can of worms by contacting these collection agencies.

Any guidance would be greatly appreciated.

[TheNewWorldMan]

There is no harm in contacting them...try to do so from a blocked number, lest you get a spike in calls from them. Don't give them any personal information other than your name at first.

What you want to do as ask them for a "pay for delete," which is when they remove the collection from your account completely in exchange for payment in full. Don't be surprised if they refuse--most collection agencies I have dealt with are far more interested in ensuring your nose is rubbed in your financial mistakes for the next decade than they are in actually making money and letting you move on. Sad, but true. If they do commit to a pay for delete, BE SURE YOU GET A WRITTEN AGREEMENT. Verbal agreements and understandings carry no weight.

If they do not agree to delete the reference, don't bother. FICO DOESN'T GIVE A RAT'S HIND END WHETHER AN ACCOUNT IS PAID OR NOT. Amazing, but true. Always bear in mind the credit system is much, MUCH more interested in punishing you and rubbing your nose in the problem for as many years as possible than it is in helping you reach a mutually beneficial agreement with your creditors.

If you cannot get the charge-offs or collections removed from your account, forget about trying to improve your credit if your score is below 600; you're spitting into the wind. For almost a year now I've done everything possible to "rebuild" my credit and I'm actually DOWN about 12 points from where I was last year at this time. Check back again in 2015 or so and see if the collections have dropped off your account.

[Skiffy]

Actually, FICO may reward you for paying delinquent balances, but it all depends on how things are reported.

I know that I did initially go up 20 points after paying a small chargeoff until the company changed the reporting to be more wrong.

[TheNewWorldMan]

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Skiffy wrote:
Actually, FICO may reward you for paying delinquent balances, but it all depends on how things are reported.

I know that I did initially go up 20 points after paying a small chargeoff until the company changed the reporting to be more wrong.

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Hmm...

It would be nice if the inventors of FICO were a little more forthcoming about the effects paying charge-offs had on an account.  All I have heard is that you take a one-time hit of around 5 to 20 points, and then your score slowly returns to where it would have been if you hadn't bothered to pay the chargeoff in the first place. 

[Skiffy]

Well, a chargeoff does affect your utilization if it's a revolving account. Mine was. Utilization is one of the biggies score-wise.

[tryingtoimprove]

What if the charge offs are on medical and utility charges?

[Skiffy]

Then they don't affect your utilization, and I don't know if paying them off will improve your FICO. There are, however, lenders that won't finance you -- regardless of FICO score -- with unpaid derogatories. Credit unions are a classic example.

[TheNewWorldMan]

Skiffy wrote:
Then they don't affect your utilization, and I don't know if paying them off will improve your FICO. There are, however, lenders that won't finance you -- regardless of FICO score -- with unpaid derogatories. Credit unions are a classic example.

Yes, there is that qualifier: for mortgages and other loans where a human actually reviews the documentation, having the charge-off listed as "paid" may work slightly in your favor.  As far as most car loans or credit card apps and FICO scoring itself, it doesn't matter.

I've also heard from several sources that the banks stick together...if you have any unpaid charge-offs, a mortgage loan agency may insist you pay them off (I wonder if they get kickbacks from the other creditors for doing that...).  Of course, if you have any charge-offs paid or unpaid, your FICO will likely be too low for a mortgage lender to give you the time of day anyway, but there are always exceptions...

[Skiffy]

Well, FICO specifically is designed to determine who is likely to default, file for bankruptcy, or fall 90 days delinquent on at least one credit account in the next two years. (I'm hoping Barry will correct me if I got that part wrong.)

With an unpaid chargeoff or collection, many lenders will see that you won't make restitution after things went bad, and therefore they have a higher risk of losing their money than your FICO score would indicate.

Banks want a steady income stream. They are risk-averse. They like profit, but they really want predictability.

[TheNewWorldMan]

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@Skiffy wrote:
Well, FICO specifically is designed to determine who is likely to default, file for bankruptcy, or fall 90 days delinquent on at least one credit account in the next two years. (I'm hoping Barry will correct me if I got that part wrong.)

With an unpaid chargeoff or collection, many lenders will see that you won't make restitution after things went bad, and therefore they have a higher risk of losing their money than your FICO score would indicate.

Banks want a steady income stream. They are risk-averse. They like profit, but they really want predictability.

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Someone else claimed that if you do pay charge-offs, you're more likely to be approved for credit cards and credit-line increases. I don't see how, since FICO doesn't care whether an account is paid (since caring would involve recognition of something POSITIVE someone does, and that's not in FICO's vocabulary).