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I have 4 items in collections according to my credit reports - 2 medical bills totaling $1700, and unpaid traffic ticket for $200, and an old utility bill for $185.

I have one credit card that I've had about 8 months and a decent income now. My credit score is in the low 600's.

Trying to fix things up but I read on one website that paying off some of these old debts can actually hurt my score, and won't help it at all!

From: http://www.lexingtonlaw.com/blog/charge-off-2/paying-bills-credit-score.html

Moreover, Fair Isaac Corporation, the company that provides the credit scoring formulas behind the FICO Score that practically every lender uses to qualify new credit applications, doesn’t award a single point for paying off a collection or charged off account. Rather, fair or not, it’s the mere presence of such an account, without regard to its ultimate payment status, that lowers the credit score.

Is this correct?

  • doing more reading on many websites tonight it seems like the 'law firm' i linked may be a bit of a scam/ripoff. But I'm still not sure if I should pay off these debts. I'm doing some reading that suggests I may be able to negotiate a "pay for deletion"? – Erin May 19 '11 at 3:34
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    Might as well pay that traffic ticket, it isn't ever going away. You can get in some deep doo when it comes time to renew your license. – MrChrister May 19 '11 at 16:15
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It will not hurt your score to pay off your debt. It will allow your score to start healing as you plug the holes in your report.

What is CRUCIAL is how you pay off the debt. Make sure you get, in writing, that paying $X amount will fully satisfy the debt and will close the matter as in Pay-To-Delete. If you try to do a settlement, this is very important.

Also, the moral brigade will not like my answer, but if you are close to seven years out on your debts, you might as well not pay them since they will fall off of your report after 7 years. If you pay any part of the debt however, it will often reset the clock on those 7 years, so tread carefully.

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    +1, the "reset" part can hurt big time. AFAIK from reading lots of stuff in some jurisdiction even willingness to discuss a debt can be enough to reset the clock. – sharptooth May 19 '11 at 6:19
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    I'm not sure about "the moral brigade", but there is a name for failing to pay money you owe just because it won't hurt you. It's called "stealing". – DJClayworth May 19 '11 at 13:37
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    @DJClayworth - don't feed the trolls! Everybody knows what the risks and rewards are for getting into a contract, and everybody knows (more or less) the penalties for breaking the contract. Many lenders steal as well, so being the only moral player at the table is a sucker position. – MrChrister May 19 '11 at 14:31
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    that sounds an awful lot like the rationalization used by thieves: "Everybody does it." – mgkrebbs May 19 '11 at 18:45
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    @mgkrebbs - it is that exactly; no doubt, no apologies. – MrChrister May 19 '11 at 18:55
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The blurb from the law site is accurate. I'm not going to say any other info from them is or isn't accurate though as I have not read their site at all.

If you check the public resources from Fair Issac directly you will get similar wording to that of the law firm:

Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)

Once the items are on your report they will weigh the score down (though less over time).

Also, paying the accounts off, other than a successful Pay For Delete (PFD), can have a negative impact on your score. By paying the account off you'll trigger a status change that will allow the account record to stick around for up to 7 more years (10 for medical debts). Which is why it is a better idea to let accounts fall off than it is to pay them once they are over a certain age.

Be aware that paying off a collection account on which you previously missed a payment, will not remove it from your credit report. Your FICO score will still consider this information, because it reflects your past credit pattern.

Source: Fair Issac: Understanding your FICO Score [PDF]

Paying an account off and getting it marked "Paid in Full" or "Settled" or anything else really won't help you at all. The adverse account record drags on your score just for being there.

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    From the Myfico booklet, "...re-establishing a good track record of making payments on time will raise your score." Paying off the past due items will not make them disappear, but they will hurt you less in future calculations. If you have 6 years to wait before the item falls off, better to settle the debt. – MrChrister May 19 '11 at 5:56
  • @MrChrister as I mentioned in my answer, yep it weighs less over time, but the status alone is a drag on the score. To state it a little more clearly; the collection weighs the same on your score no matter what status it is, but it weighs less over time. Meaning it hurts your score the same paying as it does not paying it once it hits collections. The best option you have is if you can do a successful Pay For Delete to remove it altogether. The closer the debt is to expiration the worse paying it off can be (as it can extend the time it sits on your report). – Frazell Thomas May 20 '11 at 2:12
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Get it in writing from the debt collector first that there will be a pay for deletion. This is the most fail safe way that I know to get a collections debt completely removed from a credit report, and also without the chance of it being put back on the report by another agency.

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First things first, its always good to set the records straight. When you are trying to clear your debt do them one by one and ask the collection agent that you would pay in full only if the records would be deleted from your credit history and most of the collection agencies are happy to take it off your credit report as they are getting the money. This would work generally only when you pay the full amount. I can guarantee you this because I have tried it myself after hearing about it from my friends.

If you have already paid whole amount already then records of your payments generally will not be available after 2 years with any banks even the big ones like Bank of America or Wells Fargo. That means if they don't have the records no body else would because its a burden as your payment is written off. You can file a dispute to credit bureaus for your payment history and if they couldn't provide you the history they have to take your record off your history even they know that you have delinquent history because they don't have enough proof to confirm that. And when you file a dispute its always good to file it by paper as they have to write back and you can ask hard copies of the proofs which are very difficult to get. One more thing if you want to dispute it might take couple of months atleast and you need to have patience because you already might have known how important credit history is.

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You should not pay down the debt in collections until you have a reasonable amount of money to offer as a settlement. The exception is the traffic fines -- you may have legal liability for not paying them.

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In California at least a little known secret is you don't have to pay traffic fines older than three years. I had my DL suspended for three years from 3thousand in bad tickets. I went to pay after I saved enough, and the nice lady said "the law says you don't have to pay the fines over three years old and we can't legally hold your license and we legally can't report it to credit agencies or the DMV" She got her gold star that day!!

She said no one will tell you, but being nice sometimes gets you a long way. I'm sure most people take out their frustrations on her.

So I paid about 1300$ and walked out a happy licenced man. Thanks to that lady!!

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