Not Sure What To Do With These Collection Items, Need Advice

[Anonymous]

I've been getting a lot of helpful info from the folks here at the forum to help me rebuild my credit during these last several months. One of the topics we've covered is whether or not to bother paying off delinquent accounts in collections (as from I've been told that will have zero effect on bumping credit score, which was my goal).

Today I ran my report from all three bureaus. As of today, I have a total of about 4-5 small things left that are easy to manage. They are anywhere between $200-300 each, for a total of around $1,000 if I wanted to just pay them outta pocket and get rid of them (probably less if they'll work with me on some type of pay-off amount). But from what I understand, this would be a waste of money since my score will not see a bump at all once these are removed.

But here is my question...

Is score really all that matters? If I were to go somewhere to get some type of credit line and the guy pulls my info and sees I have a "fair-good" score but accounts in collections, is that going to influence his decision making process? Could I still run the risk of being declined for credit due to these items still floating in collections and making me look bad? If not fine, I won't worry about it. But if so, it's something I probably need to take care of ('cause I don't really have that kinda money to lose paying these off needlessly.)

Thanks!

[Anonymous]

It really depends on the creditor. Example Only- First Premier Bank would most likely approve you, where Citi Bank most likely wouldn't.

[Anonymous]

Other than a mortgage, I don't think it really matters.  Most CC approvals are automatically done by a computer which doesn't care about the remarks.

That said, I'd pay them if you can.  It will make requesting a goodwill adjustment in the future a little more likely, which could potentially remove them entirely.

[RobertEG]

Mortgage underwriting criterion can sometimes require the satisfaction of known, unpaid debt as a pre-condition to loan approval.

It can even vary depending upon the age and type of collection, with medical collections often being treated differently, as well as those that are over one or two years.

Unpaid collections can also be included in your debt to income calculation, with a percentage of unpaid balance being included in your debt balance under a specific formula, such as is published for FHA loans.  That could also be a qualification factor should your debt to income ratio be too high.

Unpaid debt represents a history of not meeting obligations to repay a debt, and if that history is repeated, will result in a loss should they lend to you.

That is certainly a legitimate credit approval criterion beyond that of your raw credit score.

[Anonymous]

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@Anonymous wrote:

I've been getting a lot of helpful info from the folks here at the forum to help me rebuild my credit during these last several months. One of the topics we've covered is whether or not to bother paying off delinquent accounts in collections (as from I've been told that will have zero effect on bumping credit score, which was my goal).

Today I ran my report from all three bureaus. As of today, I have a total of about 4-5 small things left that are easy to manage. They are anywhere between $200-300 each, for a total of around $1,000 if I wanted to just pay them outta pocket and get rid of them (probably less if they'll work with me on some type of pay-off amount). But from what I understand, this would be a waste of money since my score will not see a bump at all once these are removed.

But here is my question...

Is score really all that matters? If I were to go somewhere to get some type of credit line and the guy pulls my info and sees I have a "fair-good" score but accounts in collections, is that going to influence his decision making process? Could I still run the risk of being declined for credit due to these items still floating in collections and making me look bad? If not fine, I won't worry about it. But if so, it's something I probably need to take care of ('cause I don't really have that kinda money to lose paying these off needlessly.)

Thanks!

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Its not "all about the score". Paid always looks better than unpaid, and some creditors, even one like Capital one, may deny your app for unpaid items, regardless of scores. Unpaid items may be frequently updated, depressing your scores far more than a paid item the same age might do. So yes, regardless of score effect, it can help immensely to settle old collections.

[Anonymous]

Thanks for all the helpful info all! I certainly have some things to think about regarding how I wanna tackle this based on what my current financial situation will allow.

But just to confirm my initial premise, if I did pay all these off (while helpful overall) it will not bump my credit score a single point? I've got that right don't I?

[Anonymous]

You should read through some more of this forum. You may find some things on your report which are inaccurate - which means you can dispute them and have the mremoved. That will definitely boost your score.

You can also ask the collection agencies for a "Pay for Delete" where they agree to actually delete the baddie instead of marking it "paid". This is the best case scenario, because again they remove it completely as it never happenned, and that boosts your score dramatically.

Read up on PFDs. I've removed 5 baddies that way by paying them.

[Anonymous]

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@Anonymous wrote:

Thanks for all the helpful info all! I certainly have some things to think about regarding how I wanna tackle this based on what my current financial situation will allow.

But just to confirm my initial premise, if I did pay all these off (while helpful overall) it will not bump my credit score a single point? I've got that right don't I?

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I would just stress that that is an oversimplification of how it works, but yes, all other things being equal, a paid collection hurts your score as much as an unpaid collection does. The thing to keep in mind though is that collections that are being frequently updated hurt your scores the most (because they do not have a chance to "age"), and paying these will stop the updates and allow them to do less damage as their true "age" is reflected in your scores.

[tjmolly]

Pay them off.  It does matter to your score, especially your mortgage FICO score.  The balances still report as "past due" amounts which are scored. This hit the mortgage score even harder than the regular FICO.  Just my 2Cents. Best of luck!

[RobertEG]

Any unpaid, delinquent debt that shows in your credit report can be viewed, until paid, as an indication that you are not likely to pay the debt.

However, once paid, it indicates that you do, when finally able, pay your delinquent debt.

If you have a reported history that includes unpaid, delinquent debt, particulary if the period of deliquency has been long, potential creditors may assume that you are likely to repeat that pattern, and thus lending to you will result in a loss.  That is apart for any credit score evaluation.