TO PAY, OR NOT TO PAY COLLECTIONS

TO PAY, OR NOT TO PAY COLLECTIONS

Many people start off on their credit journey by thinking that if they pay off or settle their open collections that their credit score will increase - only to find themselves with less money and a lower credit score for their efforts.

Why is this?

If you pay on an older collection that is reporting on your credit report, your credit score will likely actually DROP! This is because you will be adding new activity to an already negative account.

Let me explain...

A charge-off or a collection is ONLY negative. If you owe on it, it is a negative with money owed. If you pay it off and it reports as "Paid" or "Settled" then you have a negative without money owed.

When you pay off that collection and they update the status to "Paid" or "Settled" it will create a new "DATE OF LAST ACTIVITY" or "DOLA" on an already negative account. This gives you a freshly reporting negative item - and THAT drops your score.

"SO JEREMY, WHAT DO I DO?"

While I am not telling you not to pay your bills (which would be TERRIBLE advice), what I am telling you is that - from purely a credit repair standpoint - while paying off or settling your collections is a step in the credit repair process, it is not necessarily the first step.

The first step would be to investigate the data reporting to the bureaus. If it is found to be unverifiable, it is - by law - permanently deleted from your credit profile. Once that happens, it is time to contact the creditor and arrange a settlement so that it is not sold to another collection agency who can report to your credit.

If you have done multiple rounds of investigation and that collection item just won't budge, I would recommend CALLING the creditor and attempting to arrange for a "Pay for delete" on the account. This is where you would settle or even pay in full for them agreeing to delete it from your credit report. Not every creditor will do this. The reason you will want to call to arrange for this is that deletions like that typically violate the contract that the creditor has with their company that they use to report - so they won't be keen to put it into writing.

This is best practice for the elimination of collections from your credit report and this is the tactic set that I use professionally with my clients.

Jeremy Deysach - FICO? Certified Credit Coach

#Collection #Credilife #Chargeoff #Collections