Applying for mortgage with collection on my credit report -- should I pay the account?

[Anonymous]

hi everyone -- this is my first time posting to this forum. I've poked around a bit but can't seem to find a consensus on the question at hand -- whether I should pay a collection agency for a medical debt incurred in 2009 in order to (hopefully) raise my credit score. Here's the details:

-- Medical bill of $1,500 incurred in June of 2009 and handed to collection agency in June 2013.

-- This is the only derogatory line item on my credit report

-- My credit score ranges from 705 with Equifax to 712 with Experian

-- My instinct tells me I should contact the CA and offer to pay the full amount. In return, I would ask that they either remove the item from my credit report, or mark it as paid in full

I am getting conflicting advice about the impact of paying this in full. My loan offer said I should NOT pay it, because if I do, the date attached to it on my credit report will be bumped up from June 2013 (slightly old) to September 2015 (very new and will lower my credit score).

i spoke with a credit counselor today, and she said if I pay it in full, it will at the very least be marked as "Paid in Full" which reflects better than the outstanding amount. Plus, it would reduce my debt-to-debt limit ratio, which could then bump up my score a bit.

im mainly concerned about my score right now because I want to qualify for a mortgage and get a good interest rate, and I know that ideally if my score were in the 740-750 range I'd probably qualify for a better rate than I do right now. 

Im confused! Do you all have a recommendation as to pay or leave unpaid?

[RobertEG]

Bottom line, in my opinion, is what your mortgage lendor is or will require.

Many will requre that you have no unpaid, delinquent debt as a pre-condtion to any mortage approval.

If your loan officer is advising not to pay, and that you can still qualify, then you dont have an overriding need to pay.

Advice from your credit advisor is predicated on how it will appear to others.  If your loan officer is already aware and not requiring that it be paid, then speculation of how others might view the unpaid debt is not the primary issue.

[CH-7-Mission-Accomplished]

Do not do it.  Your scores will take a huge hit because FICO will see it as newly updated.  You could expect to see a 50 point drop.

A paid collection is as bad as an unpaid collection for FICO scoring, and you would just update it to today's date.

You can easily remove medical collections using the "HIPAA method."  Google it and follow the instructions precisely.  It will be gone.

[Wovenyarn]

Also you have a pretty high credit score. Depending on your lender and what kind of loan you are trying to get, you may already qualify for the best rate. With my lender and the VA loan, my LO said scores over 680 get the best rate with their company.

[Cotton_Britches]

The opinion of your loan officer is the only one that matters. Why are you seeking more advice when you already have the answer?

And he/she is right: if you pay the debt, it will update and drop your score.

[Anonymous]

Thank you! I guess I'm seeking additional input because this is all very new to me (first time homebuyer, never had anything negative on my credit report before) so I want to make sure I've got the full swath of information to help me make the best decisions. 

Thanks again for your insights.

[Anonymous]

I would suggest keeping in mind that if someone here says 'pay it in full' and it changes your score and your LO says no, it will not accomplish your goal of getting the mortgage, it would be unsuccessful for you.

I would say follow your LO and ultimately, the UW, and after the mortgage, reconsider paying it then.

As someone else suggested, do what the LO suggests to get your goal.

hth

[adifferentme]

If you pay it will definetly update and your score will drop. Take the advice from your loan officer because right now your scores look pretty good enough qualify for a good rate.

[Anonymous]

That makes a lot of sense -- definitely helpful. Thank you

[Anonymous]

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@Anonymous wrote:

I would suggest keeping in mind that if someone here says 'pay it in full' and it changes your score and your LO says no, it will not accomplish your goal of getting the mortgage, it would be unsuccessful for you.

I would say follow your LO and ultimately, the UW, and after the mortgage, reconsider paying it then.

As someone else suggested, do what the LO suggests to get your goal.

hth

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^^^ That

Your LO will be the single source of truth until it comes time to write up the papers. It is within the realm of possibility that the underwriter will come back and say, "Pay it or no deal." It's unlikely, but it could happen. 

If you're serious about buying a home, do precisely what your LO tells you to do with your CR.