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Collection and FHA

Regular Contributor

Collection and FHA

Hi everyone, I have been lurking and reading and all of you posts have helped me tremendously! Smiley Happy

I have a question though. I have recently been preapproved for and FHA loan with a midscore of 668. I have one collection account with Asset Acceptance and I currently have a payment plan with them. I am 2 more payments away from being paid off. This only shows up on my TU report. This account also shows "Account information disputed by consumer, meets FCRA requirements".

My LO said that I need the dispute comment removed. Ok, I can do that. He said I don't need to pay this off before closing. I'm nervous that this will drop my score once its paid in full because of the date of Last Activity. I don't want to abandon my payment plan because I'm almost done (May is the last month).

Any advice on what to do? I feel stuck because I really don't want this to bring down my score. Any ideas how this will play out?


Thanks in advance!

Message 1 of 8
Regular Contributor

Re: Collection and FHA

Check with your LO to be sure, but most lenders (if they pull a new CR prior to closing) are ok with a score dropping as long as it does not drop due to a new derog reporting.



Message 2 of 8
Established Contributor

Re: Collection and FHA

Your fears about date of last activity are unfounded. Paying off a collection will not hurt you (or help you). Collections are scored the same whether they are paid or not. However, most often, lenders do require that collections be paid in full before closing. Since it will have no impact on your credit score, I would just pay it in full now and be done with it.

Mid-2010 Starting Scores: FAKO EQ 476 FAKO EX 506 FICO TU98 575
July 2017 Current Scores: Approx 710 (waiting for official updates)
Message 3 of 8
Regular Contributor

Re: Collection and FHA

However, most often, lenders do require that collections be paid in full before closing



Acutally if the borrower has a payment plan documented with the collection agency, that is fine for most FHA lenders.

Message 4 of 8
Regular Contributor

Re: Collection and FHA

Thanks for your input,, I was worried about it Smiley Happy

Message 5 of 8
Regular Contributor

Re: Collection and FHA

You are welcome, glad it helped. It is challenging to give hard and fast answers, as lenders are putting their own guidelines in effect in addition to FHA/VA guidelines.

Message 6 of 8
Established Contributor

Re: Collection and FHA

Disregard - MarineVietVet to save the day.

Starting Score: 627 EQ, 621 TU - 11/15/08
Current Score: 778 EQ, 781 TU, 778 EXP 07/20/12 Lender Pull
Goal Score: 800 EQ & TU

Take the FICO Fitness Challenge
Message 7 of 8
Moderator Emeritus

Re: Collection and FHA

cdtotten wrote:

MBOhio - your information is partially incorrect. Yes, there is no difference in scoring for FICO purposes between a paid and an unpaid collection.


However, as the OP pointed out, paying off a collection will cause the last reported date to be updated, which will make the tradeline look like a recent derog and drop his score. Collection damage decreases over time, but updating the tradeline will make it clean and fresh and score-hurting. He had a valid concern, but no - most lenders will not mind the drop unless there is a new derogotory item.

This doesn't apply to collections. I have been guilty in the past of spreading this in error. Since HTSU explains things MUCH better than I can I will C&P this from one of her posts:



Collections are scored off the date of assignment, not the DOLA. A change in DOLA shouldn't affect the score. .


This is such a common belief that we're trying to find examples with before-and-after reports where it happened, in order to see what's going on. If either the CA or the CRA is handling the data incorrectly, it needs to be corrected.


Here's a thread discussing this: Settle or Pay in Full?


Again, I'm not saying that it doesn't happen, but it's not supposed to, if the CA is reporting correctly and if the CRA is putting the info into the correct data fields.





From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Message 8 of 8