Will a CFL to pay off baddies do more harm than good?

[valley_man0505]

I have a CapOne CO that is 5 years old and it is tanking my scores since it is still counting in my utilization.  Also, they continue to update each month and add about $50 to the balance, which is now up to almost $5500.  SOL is coming within the next year, so I am also worried they will sue.  I just got one judgement and don't need another one.

Also, I have the opportunity to get rid of 10 different medical collections if I can come up with enough money to PIF.  I also have a $1000 collection that I am quite sure will PFD if I contact them to PIF.

If I take a consumer finance loan to help me pay off all these baddies to get a "clean" report, will the CFL do more harm than good?  I have heard that CFL's ding your score, but I would be using it to get rid of other baddies.  Is just the PRESENCE of a CFL loan what causes the ding, or does the AMOUNT of the CFL influence how much the ding will hurt? 

[Anonymous]

in my experience the ding was 10 points +/-, and the ding is for the mere presence not the amount.

[valley_man0505]

bump

[RobertEG]

That is a difficult question, Valley.  A lot depends on the "harm" you are asking about.

CFLs are definately not scored as highly as other installment loans.  Plus it will take a new inq. to get it.  Sure, getting an installment loan to then use to pay off revolving debt will result in an decease in your revolving % util, but will add debt in installment %util.   It will also lower your avg age of accounts.  Additionally, paying off accounts will not remove them from your CR, and thus do nothing to eliminate their impact on your current FICO score.  Paying them off will not give you a "clean" CR.  They will remain on your CR, regardless of subsequent payment status, for 7 (or 7 1/2) years from the DOFD of the account, unless they agree to a PFD, over which you have no control.  That is a crap shoot.

Then there is money out of pocket to consider.  What is the interest rate on the CFL?

However, if the "harm" you are primarily concerned about is the threat of lawsuit for the existing debt, then a CFL would address that problem.  But before I did this, I would try to negotiate better payment terms with the current creditors.  They will usually welcome agreements to pay, with terms, for they collect on only a fraction of old, bad debts.  If you get an agrrement to pay under acceptable terms that are more favorable than the %APR on the CFL, then that would address the fear of future lawsuit, and might be cheaper than the CFL. 

However, this too has its potential perils.  Once you make an offer to pay on a deliquent account, many state laws provide for a resetting of their SOL, extending your period of liability. I advise you to check out your state SOL statutes.

I lot to think about......

Good luck!

Message Edited by RobertEG on 10-08-2008 07:34 PM

Message Edited by RobertEG on 10-08-2008 07:36 PM

[valley_man0505]

Thanks Rober.  Lawsuits are one of my primary concerns.  I have already been sued 4 times this year.  Three of them I settled before court and I am about to make my last payment on two of those tomorrow thanks to a unexpected work bonus.  I had been paying $400 a month on those.  I am just about to start paying on the third one, and I just received a judgement on the fourth one a couple days ago, so I don't know what is going to happen on that one yet.  The issue is that I never know when another one is coming and none of them care if I am already in payment arrangements with someone else.  It would be so much easier to take a loan with a monthly payment and pay them off--then I would know what to plan for each month.

Also, the CA that has all ten of my ex-wife's medical bills for which I am responsible has agree to PFD if I do it by the end of November.  Those are a MAJOR ding on my reports.  In regards to a "clean" report, I know that paying things off won't help my score.  However, I would like to try to buy a house in the near future, and there is probably a pretty good chance any lenders would want to see my delinquent debts paid first.  The big question becomes how would this CFL look to a lender compared to nearly 6 year old unpaid CO's?