Mortgage and unpaid charge off's... Interesting situation, need some guidance.

[Anonymous]

I am interested in purchasing a new home, and have a question regarding a couple of unpaid chargeoffs that appear on my credit reports.

The first one is a USAA Mastercard that charged off in 2009 (first date of delinquency was 1/2009, so this account will fall off the reports in a year). The balance is on the high side at 15K. There is no collection agency to deal with on this, just the tradeline from USAA.

The other is a Citifinancial personal loan with a balance of 6K that charged off in 2009 also, with a date of first delinquency of 12/2008 so it falls off the reports in 11 months. No collection agency to deal with on this account either.

Ordinarily I would just wait the year until these fall off and not mess with them, but my timeline has been accelerated due to wanting to apply for a mortgage. I spoke with USAA and Citifinancial, and both would accept 50% payment to settle the accounts. They did not seem agreeable to deleting the tradelines in exchange for payment even though these fall off within the year.

I know that a payment on these should not re-set the 7 year clock, but I'm not sure if it would re-set the clock on the SOL. The SOL is 6 years in Colorado, so as of now I should be safe from any law suits for collection on these. 

The problem I'm having is the USAA account is reporting strangely on the reports. It is correctly showing as a charge off and is "closed" status on all three reports, but I still get a notification of a new derogatory account reported on my credit alerting services each month. Whenever I check what the derogatory is, it's always the USAA charge off. When I look at the trade line, nothing appears different, and the original date of delinquency is still the same. There is, however, a newly updated "amount past due" noted on the account, that increments up by a couple of hundred dollars each month. I believe this is making it look to the FICO scoring system like this is a recent late payment. It also appears that myFico is counting the balance for the USAA account as part of my revolving balances, and is including it as part of my utilization which is not correct. Has anyone else experienced this or know if this is normal? Can the past due balance be updated every month on an account that is charged off and closed? If this is affecting my FICO scores, than I believe the account going to zero balance would probably give me a 30 point bump in my scores, even with the paid charge off still showing on the report.

Should I pay these off? Would my chances at getting a mortgage be better with these paid off, or would the mortgage company require them to be paid? Lots of factors at play here and looking for the best approach. I also don't want to blow thousands paying these off if it isn't going to make a difference anyway.

Thanks, and sorry this post was so lengthy.

[newstart2010]

Disclaimer:  If you can pay off legit debt that you owe, you should.  That said...

Almost every lender will require you to pay these off.  If you cannot wait then you should pay them off.  Otherwise you can wait and let it fall off, during that time you create a year of secure credit line history with positive payments, and you get a much favorable mortgage in just 12 short months.  Personally, in the interest of long term money savings, I would wait the year and create a positive history.

[Anonymous]

Thanks for the suggestions, I appreciate the feedback. I do have positive trade lines on my report, these are pretty much the only things remaining from a difficult time I went through back in 2008/2009. I have two car loans, four "starter" credit cards, student loan accounts, etc. My credit is good enough to get auto loans, and some credit cards, but my main concern is the more stringent requirements for a mortgage. Once these charge offs fall off, there will be no negative information on my reports. 

[newstart2010]

Then I would focus on paying down your balances and garden for the year and you will most likely see a huge jump in your score when the bad lines come off.  You can see a difference of 100 to 400 a month savings just in percentage rate alone with the waiting on the bad trade lines to go, not to mention a lower down payment option.  Use the year to get your credit utilization below 5% and making sure everything else is clean.