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Conflicting Opinions on Paying off a Collection

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Conflicting Opinions on Paying off a Collection

My husband has an old account on his CR that shows around $127 still unpaid for Verizon collections that's fairly old. I have been reading a few conflicting opinions about whether it's worth it for him to pay it off. Some things I've read said DO NOT pay them because even if the account goes to $0, it still lingers on the CR until it falls off naturally, and it will still appear as a negative mark anyway. Others say to pay it off and it should be removed, which would obviously look better for his FICO and his CR. His mid score is a bit low at 629-640. We're pre-qualified but plan to start our mortgage application process soon. If he pays it in full, does he need to follow up with the original creditor to have it removed? Or would paying it at this point be a waste of money since it'll probably still reflect as a negative ding anyway? Thanks in advance!

10 REPLIES 10
Established Contributor

Re: Conflicting Opinions on Paying off a Collection

Who is the collection agency? 

 

For that amount, I don't think your lender would be concerned on any real action from the agency ie judgment. When was the last actual reporting date? Is the account closing in on the 7 year mark? The older the age, the less impact (albeit still an impact) it has against the scores. 

 

My concern would be if you paid it off, and if they haven't been each and every month reporting it, will update to say June 2019 instead of years ago, and will ding it as if it was new. 

 

Are there any other areas that need addressing on the middle scores, such as aggregrate or individual utilization on revolving credit? Of revolving credit, how many cards are reporting a balance each month? Optimal is just one CC, and at a very low utilization. 

 

Are there any other major derogs, 30s, 60s,90 day lates on his file? 

 

How new is the youngest account and inquiry? 12 mos, inquires become unscoreable FICO 8 wise, but new accounts hit the year mark will get a bump in scores. 

Message 2 of 11
Contributor

Re: Conflicting Opinions on Paying off a Collection

Call the collection company and ask for it to be completely removed if you pay it off in full. Any "Open" collection is bad no matter the amount as far as my experience has shown.

Message 3 of 11
Established Contributor

Re: Conflicting Opinions on Paying off a Collection

I have told all my borrowers over the years, "Don't go renegade on me by paying off any old collections or charge offs without speaking with me first!" Why? Simple. You will most likely cause your scores to drop. In all my years as an LO, I have never had a loan denied due a piddley little collection.

 

If an Underwriter really has an issue with any outstanding collection, than you can pay it at closing. Please know that lenders look at collections and charge off differently now in comparison to back in the old days. Please call your LO and discuss this with them, unless you can negotiate a pay for deletion, I recommend that let sleeping dogs lie until after you close on the home.

 

Best wishes to you!

Mortgage Banker - Since 1988 offering FHA, VA, USDA, Conventional, Jumbo and Portfolio Loan Products. Licensed in AL, AZ, CA, FL, GA, IL, IA, IN, KY, LA, MI, MO, NC, NE, NV, NJ, OH, OK, OR, PA, SC, TN, TX, VA and WI.
Message 4 of 11
New Contributor

Re: Conflicting Opinions on Paying off a Collection

Thank you, that's the consensus I've been seeing since I originally posted. My main concern is his Charge off on a student loan, which is causing a lot of stress right now. We need to determine how to handle that much more quickly than a small $127 collection.. Thanks again Smiley Happy 

Message 5 of 11
Established Contributor

Re: Conflicting Opinions on Paying off a Collection

I didn't think student loan debt ever goes away unless it's paid as agreed.  Most student loans are insured by the federal government and those type of loans don't bode well for consumers when they are left unpaid.

 

Homeloanexpert is 'spot-on' with the guidance of paying the Verizon collection at Closing if necessary, but you definitely have 'bigger fish to fry' with this 'charged off student loan'. 

 

 

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 6 of 11
Community Leader
Super Contributor

Re: Conflicting Opinions on Paying off a Collection

The negative/defaulted SL debt will always stay on your reports until PIF. All you can do is work out a payment plan going forward .

My rebuild worked for me, but won't necessarily work for you!
BK7 D/C- 08/2013
Message 7 of 11
New Contributor

Re: Conflicting Opinions on Paying off a Collection

Thanks all, I've sent an email to our LO to see what he recommends we do before we even apply. I'd prefer to be able to get a mortgage and then sort this out, but unless this lender is lenient and uses conventional with no overlays, we may be out of the running to buy a home for the time being. 

Message 8 of 11
Community Leader
Super Contributor

Re: Conflicting Opinions on Paying off a Collection


@MinAlamo wrote:

Thanks all, I've sent an email to our LO to see what he recommends we do before we even apply. I'd prefer to be able to get a mortgage and then sort this out, but unless this lender is lenient and uses conventional with no overlays, we may be out of the running to buy a home for the time being. 


@MinAlamo , keep us posted and let us know what happens. My guess is, they will be mroe concerned with  thevCO SL than the Verizon one. Good luck, and hoping things work out in your favor! 


My rebuild worked for me, but won't necessarily work for you!
BK7 D/C- 08/2013
Message 9 of 11
New Contributor

Re: Conflicting Opinions on Paying off a Collection

Thanks for your words of encouragement! I am hoping we'll be able to find a workaround, but of course like every home buyer we are at the mercy of the lender. I'll be sure to keep you posted when we hear anything. Smiley Happy 

Message 10 of 11
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