Will paying off collection raise my credit score?
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My wife & I are looking into buying a home. Only problem is that I have two collection accounts on my report.
Will paying off collections raise my credit score? And by how much? I need at least 40 points increase…
Re: Will paying off collections raise my credit score
Paying off old collections won’t raise your credit score. In fact, it may even drag it further down!
Sometimes, when people pay old collection accounts, the new zero balance is reported to the credit bureaus as a new collection account. Since FICO is very sensitive to account age (up to 70% of your FICO is determined by information from the past two years), the date update adversely affect your score.
This doesn’t suggest that you shouldn’t pay off the collections. Most mortgage officers will require all derogatory account to be resolved before proceeding with the loan approval.
Another reason to pay off the collections is that old debt doesn’t just go away. You may get sued (probably right before the end of the SOL), and if you lose you’ll incur another derogatory item on your report, not to mention legal fees etc.
You must resolve all collection accounts if you want to get a mortgage. The only ways to do that w/o further denting your score is to try and get a pay for delete agreement, in which you agree to pay all or most of the debt in return for the collection agency deleting the account off your credit report. With the account deleted, your score may improve, depending on the account age.
PFD’s are very hard to get
Pay for delete agreements are very hard to get. Many collection companies won’t consider PFDs because it could get them to trouble with the credit bureaus, which consider PFDs as black-hat credit repair practice.
What kind of collection accounts are they anyway? Are they credit card debt? If so then you would be wasting your time with PFD because even with the collection account gone, the original defaulted credit card charge-off account cannot be deleted since it was reported by the credit card issuer and not the collection company.
PFDs only work for one time items such as unpaid utility bills, medical bills, police tickets etc.
Source:
• why-pay-off-debts.html
• how-to-pay-off-debt.html
Lower your utilization!
The collection accounts is not what dragging your score down. If the accounts are from a few years ago then they have a very small effect on your FICO. Try lowering your credit utilization if it’s higher than 35%.
People that lower util below 35% usually experience 40 – 80 points increase in their FICO (see this thread).
Lowering your credit utilization will also lower your DTI ration which is a good thing when allying for credit.
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