Conflicting Opinions on Paying off a Collection

[Anonymous]

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!

[DollyLama]

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. 

[firemartinez1980]

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.

[homeloanexpert]

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!

[Anonymous]

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  

[NC_Mtg_Loaner]

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'. 

[pizza1]

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 .

[Anonymous]

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. 

[pizza1]

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@Anonymous 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. 

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@Anonymous , 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! 

[Anonymous]

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.