Has anyone had this problem?

Anonymous · ‎06-05-2007

I have talked to a number of lenders about getting a mortgage. Two of them pulled my credit report and said they would tell me what I would have to do to qualify with them. It meant paying off old collection accounts and a judgement - which I did. Some of the collection accounts were five years old or more.

When they pulled my credit report again, the payments were reflected but my credit score plunged nearly 75 points.

Has this happened to anyone else? I read on a Web site that paying off the old accounts had made them appear current dinging my credit.

Now those lenders won't work with me, even though I did what they asked me to. Is that ethical? Can they do that?

Anonymous · ‎06-05-2007

yeah it is pretty crappy that , that has to happen on multiple levels. Such as your credit dropping when paying it off. You already get punished once having going into collections for not paying it and then get punished again for paying it. Makes no sense and is not fair. If FICO can tweak their system to eliminate AU's then there is no reason that can't tweak the system so an old collections account doesn't appear new when paid off.

As far as you mortgage lender, that does just stink. That is why they always say, to check your credit report and clean it up at least 2 years before you start looking for lenders.

Anonymous · ‎06-05-2007

Maybe my experience is similar....

I had two charge offs with Cap One. I paid them off and they updated my CR account balances to $0 owed, but at the same time they reapplied the charge off note. The FICO system responded by indicating I had two new 30 day late payments which screwed up my score. I disputed the items on the reports, and they removed the new charge off note thus fixing the problem.

It wasn't easy to get the Cap One accounts paid off and reporting correctly, but it resulted in about a 50 pt jump in my scores. The reason for the big jump was due to how FICO does scoring on Credit Utilization. Cap One was reporting $2,700 as the amount owed and past due even though they had charged it off. It was causing my credit utilization to be very poor (virtually 100%). As you probably know, Credit Utilization amounts to 30% of your score and you want it to be <9%.

I've heard that mortgage companies (FHA for example) require that past accounts be paid off, so you're forced to do it. When you look on your reports, see if they're reporting as though the collection or charge off just happened or as a new late. If so, then I'd recommend disputing the items as I was able to do. Good luck.

Anonymous · ‎06-05-2007

@Anonymous wrote:
I've heard that mortgage companies (FHA for example) require that past accounts be paid off, so you're forced to do it.

Depends. I got a Fannie Mae (over $58K income and FHA doesn't want you) and they didn't care about small collections. I had 3 unpaid on file, balances less than $200 each, that I advised my lender I had disputed. He said it was a non-issue. They even show on the underwriting report. If you have large collections they're not going to gloss over them but apparently they'll let a few small ones slip by.

Anonymous · ‎06-05-2007

@Anonymous wrote:
I have talked to a number of lenders about getting a mortgage. Two of them pulled my credit report and said they would tell me what I would have to do to qualify with them. It meant paying off old collection accounts and a judgement - which I did. Some of the collection accounts were five years old or more.
When they pulled my credit report again, the payments were reflected but my credit score plunged nearly 75 points.
Has this happened to anyone else? I read on a Web site that paying off the old accounts had made them appear current dinging my credit.
Now those lenders won't work with me, even though I did what they asked me to. Is that ethical? Can they do that?

I would have them use you old score. Paying the CA was a condition for approval.

Anonymous · ‎06-05-2007

Paying old collections does not help your score, and often it hurts your score. It's why I say NEVER pay a collection (as the damage is already done) unless you HAVE to pay them, or you get a PFD.

Anonymous · ‎06-06-2007

The only caveats that I have in regards to paying off collections are:

1) Some mortgage lenders (e.g., FHA) require you to pay off collections in order to get a mortgage.

2) If they are reporting amount owed and/or past due amounts, it can affect your credit utilization and depress your score. This is what was happening to me with two Cap One CCs. When paid off, my score jumped 50+ points.