I recently paid off a $70 collection because my husband and I are looking to purchase a house in a few months. Two lenders I spoke to said to pay off any collection before applying for a mortgage. I am unsure as to how this will affect fico score. In have read that it can hurt your score because it brings account current and I have also read that it does not hurt your score. I am hoping it won't lower score does anyone know
In some cases paying a collection can lower your FICO score. Sometimes it does not affect your score at all, but unfortunately paying a collection account will almost never improve your FICO score.
I'd start sending goodwill requests to the creditor / CA that is reporting the collection ~ you want to get the collection removed from your reports.
Let me just add that when buying a home it is not a good idea to pay off a collection before applying unless you have plenty of room in your scores in case your scores tank from paying off the debt. If UW wants the collection to be paid it will be one of your conditions to close the loan. Even then I wouldn't pay it til you were at closing. Just for future reference for any one else who may read this post.
Before paying off any collections, you should contact the CA in writing that you will pay off the collection in agreement (in writing) that they will stop reporting the collection to the CRA's.. If the agreement goes thru successfully, it should give you a boost in your scores once paid. Never talk to them on the phone! Talking to them on the phone will make your collection current also. I have never seen this info on this forum, but it does work. It worked for me. I have one more collection to remove in process right now. It takes about 30 days before the collection actually drops, but that will make room for better interest rates on mortgage and auto loans....Really tho, you're better off dealing with the original creditor. If you still have a bill from them.. Then just pay them. If it's still reporting from the CA after you pay off the OC.. Dispute it. It takes time, but it's worth it! And one thing to remember, the scores that you see on here or any other CRA, may not necessarily be what lenders are looking at. I learned that the hard way. Hope this info was helpful, and GOD bless!