Jump to content

Paying off debt can lower your credit score?


kerivoice
 Share

Recommended Posts

I am currently in the process of working on improving my credit and credit score and have stumbled upon some pretty scary stories from people who thought they were trying to do the right thing and still ended up with a lower credit score so I'd really like some insight from some of you who may have experience with this or just anyone who understands how a credit score works (at least somewhat...it is confusing to say the least).

After reviewing some websites and books I've found that it may not always be good for your credit score if you pay back an old debt.

If something has been on your credit report long enough and it's about to fall off (usually seven years, except bankruptcy which is ten years) then it would seem that it's a bit self-defeating to pay the old debt (which is really strange because you would think that would be a good thing) because if you pay it--or make a payment on it--it will then be on your credit report for another seven years from the date of the last payment. Is this correct?

So I guess it looks better if it falls off completely than if it stays on and is paid because the report will still show that it was delinquent for a really long time before it was paid off--and then THAT will be on your credit report for seven more years. Is this true?

If this is correct (it's really weird and doesn't make any sense at all--and also punishes those trying to fix their credit and do the right thing)...

I can see the logic in waiting for something to fall off your credit report if it's going to happen within a short time--maybe another year or two.

But what if it's going to be four more years before it falls of your credit report and you're trying to fix it so you can qualify for a mortgage or car payment?

What is the best way to handle old debt that is still going to appear on the credit report for four more years?

If a debt settlement is reached on those accounts...what can I do to make sure that my credit score is affected in the best way possible and not make my credit score worse? I know it's important to get the creditor to agree in writing to list the account as PAID IN FULL or as close to that as possible when negotiating...

But if there are 2-3 accounts like that--that have to be settled because one can't wait until they fall off the credit report...once the other bad debts fall off...will there still be a possibility of qualifying for a mortgage that has a fairly reasonable interest rate? Or is it just better to wait the whole four years and let everything fall off. Will the remaining 2-3 accounts that continue to be listed on the credit report as being late but eventually paid in full cause absolute denial of a mortgage?

I guess what I'm trying to figure out is if it's worth it to settle and pay the debt or should I just wait the whole four years for it to fall off? Which will give me a better credit score and a better mortgage?

Any opinions or experiences with this would be appreciated.

Thanks.

P.S. I was planning on settling with all of my creditors until I found out about the Fair Credit Reporting Act (FCRA) limit of seven years...and that if I pay them and they are about to fall off anyway it would only affect my credit score negatively as they would still appear for seven more years as debts that had been delinquent--even though I finally paid them. That is just crazy and extremely confusing.

Link to comment
Share on other sites

If they're with the original creditors, pay them. If you don't, they will be passed onto collection agency's, and then you're going to be in a bigger mess.

If they're already with collection agency's, don't pay them. Read on here how to handle collection accounts.

The 7 years is for delinquency's. If you bring the account current, that's a very good thing. It's not going to renew anything negative (as long as it is with the OC).

Link to comment
Share on other sites

Paying anything bad at 6.5 years (or any other time) will NOT cause it to be reported for another 7 years. The ONLY things that cause it to be reported longer than 7 yrs (approx) from the DOFD (Date of First Delinquency) are:

*Reaging of the account - changing the DOFD to reflect a later date. This is illegal.

*paying enough to bring the account current again, then defaulting again (new DOFD= new 7 yrs)

BTW keri - WELCOME! ( I used to work with a keri, then she changed jobs) Noticed you're from WA as well - rock on! Check the links in my signature for some nice info for us Washingtonians regarding collection agencies.

Link to comment
Share on other sites

I can see the logic in waiting for something to fall off your credit report if it's going to happen within a short time--maybe another year or two.

But what if it's going to be four more years before it falls of your credit report and you're trying to fix it so you can qualify for a mortgage or car payment?

What is the best way to handle old debt that is still going to appear on the credit report for four more years?

If a debt settlement is reached on those accounts...what can I do to make sure that my credit score is affected in the best way possible and not make my credit score worse? I know it's important to get the creditor to agree in writing to list the account as PAID IN FULL or as close to that as possible when negotiating...

But if there are 2-3 accounts like that--that have to be settled because one can't wait until they fall off the credit report...once the other bad debts fall off...will there still be a possibility of qualifying for a mortgage that has a fairly reasonable interest rate? Or is it just better to wait the whole four years and let everything fall off. Will the remaining 2-3 accounts that continue to be listed on the credit report as being late but eventually paid in full cause absolute denial of a mortgage?

I guess what I'm trying to figure out is if it's worth it to settle and pay the debt or should I just wait the whole four years for it to fall off? Which will give me a better credit score and a better mortgage?

Just letting things "fall off" is a bad idea if mortgage applications are in the offing.

The application asks about your debts (not whether your debts are out of statute or whether they're still on your consumer reports [keep in mind that for a mortgage over $150k the lender can pull an RMCR or "full factual" that goes back beyond 7 years]). If you owe it, you have to put it down (possible exceptions in Wisconsin and Mississippi [and perhaps another state or two], where SOL may extinguish the right as well as the remedy). That's for starters.

But something funny happens when that mortgage pull occurs. Everybody you've ever defaulted on who has been watching your CRA reports will see it, and will come out of the woodwork with reaged TLs on your reports ... and they won't let go.

So you've got basically four options that all depend on your intentions and abilities:

1. You can let everything fall off, then blithely whistle your way to a run-of-the-mill mortgage broker who pulls your credit, sees that it's fine and preapproves you and then you contract on a house and then all these JDBs come out of the woodwork, put raged TLs on your report that show up on the second pull, and ruin your deal and/or get your money.

2. You can work with a mortgage broker who specializes in B/C situations and you can have that pull done about a year in advance, then you can settle with or fight everyone who pops up until it's all resolved and you can go ahead and get the loan. Some accounts may actually need to be settled at the closing of the loan. The B/C guys are fairly good and knowing what to do and how to do it, but they have to stay far, far away from anything resembling "credit repair" or they'll be in legal trouble. Credit repair you must do on your own.

3. You can settle with or fight everyone long before you start trying to get a mortgage (keep in mind that if you settle and you can't get PFD, you may actually want to have an account show that it was settled for less so that the other jackals who are watching your reports don't get their expectations raised). Then after you settle, you can wait a bit and see what you can knock off or make look better through the dispute process. You're still probably going to wind up going to Mr. B/C to get the loan.

4. You can learn a tremendous amount about who owns your debt and whether they can get anywhere in court (which basically comes down to whether they can and will come to court with "media" from the OC, and also whether they can or will fabricate a "phantom payment" to try to sidestep the SOL), then you can decide for yourself on a case-by-case basis who you must pay, who you can fight, and who will just fade away if you knock 'em off your reports ('cause they're not doing hard or soft pulls on your reports anymore, etc. and won't be looking to see whether you're in the mortgage application process). Then you can pursue a mortgage without the B/C guy with reasonable certainty you'll be OK.

Link to comment
Share on other sites

They do come out of the woodworks once you get a mortgage. Since we bought our house in Oct, we have had 3 new accounts added on our credit that wasn't there before.

You got lucky that they were slow.

They were trying to get you over a barrel.

But now that they know you have an asset, they're still dangerous.

Link to comment
Share on other sites

The best advice I can give anybody

Opt out!!! That stopped a lot of pulls on my CR's.

Opting out only shields you from the ones who are lazy and/or cheap (they're buying marketing lists of people in the market for a mortgage [based on the presence of a recent mortgage pull] and comparing them to their internal lists of debtors). This is cheaper and easier than subscribing to the CRAs' "reappear" services or pulling softs or hards themselves, even on an automated basis.

Link to comment
Share on other sites

I know but a lot of my creditors that were not reporting were doing soft pulls on my credit. At least now if they wanna see, they have to pay...haha

The ones that are recently one my report are local collection companies. I figured they probably read about the mortgage in the local paper. There were no hard or soft pulls from them.

Link to comment
Share on other sites

The ones that are recently one my report are local collection companies. I figured they probably read about the mortgage in the local paper. There were no hard or soft pulls from them.

TU is different from other CRAs in that it is often associated with local businesses that often go by the name of "Merchants Association"s (which were basically CRA and CA on a local basis back in the day ... now they're just sort of AAA farm teams for TU) ... and these local businesses are often closely associated with one or more local CAs (they might be wholly or partially owned by the Merchants Association or its principals). The different local CAs may be specialized with respect to the type of businesses they represent ... trade creditors, consumer creditors, medical creditors all may use different small firms to collect, all of which are MA affiliates. You're looking at remaining relics of a bygone era when you see this sort of thing, and chances are these locals got their information from the local MA, which is closely aligned with TU. The local MA is probably watching the filings at the courthouse themselves or by using a subcontractor rather than just reading the papers.

That's one reason TU tends to pick up PRs the others either miss or pick up much later. The others rely on Lexis/Nexis's Banko service to feed them PR info.

For instance, in Tampa the Merchants Association either owns or is closely connected to MAF Collections.

Link to comment
Share on other sites

I know but a lot of my creditors that were not reporting were doing soft pulls on my credit. At least now if they wanna see, they have to pay...haha

The ones that are recently one my report are local collection companies. I figured they probably read about the mortgage in the local paper. There were no hard or soft pulls from them.

How do you opt-out? I've seen links to do that, but I didn't trust them.

Link to comment
Share on other sites

  • 3 weeks later...
Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.. For more information, please see our Privacy Policy and Terms of Use.