Mycla

Paying off old debt, effect on score. Clarification please?

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I've found an issue that still has me scratching my head like crazy. I just can't seem to get this one down in my head, because it almost seems as though the answer changes depending on the type of debt involved. Or else I'm just reading way too much and mixing the proverbial metaphors. LOL I actually think I'm confusing two separate end results.

I have multiple types of debt on our credit reports, debt I'm working out a plan to pay off. That plan includes attempting to negotiate PFDs, or even Paid-as-agreeds. Something other than evil black marks from he11. LOL :evil:

What I don't understand is the effect paying these off is likely to have on my credit, both in terms of if I can get a paid-as-agreed or not. Associated with that, I don't understand what a paid-in-full (regardless of how reported) on an old debt will do to the 7/7.5 reporting years.

I think I understand correctly that something bad remains on your credit for like 7 years based on the DOFD or date of last partial payment. What happens if you have a debt that has been reporting for like 4 years, and you pay it off in full? If they mark it as paid after collections or whatever, is it now going to be 7 years from when I make that full payment before it ages off?

Like medical bills that are with collections. I'm trying to get them pulled back by the OC, but I may just have to pay the CA and suck it up. How does that impact my credit and does the 7 years reset when I send in payment?

How about a charged-off credit card (HSBC) that is now with a CA or JDB? ($300)

What about old utilities with a CA or JDB?

Old cell phone bill with a CA or JDB?

Bad check originally with Certegy now with a CA or JDB?

Old cable bill with a CA or JDB?

It seems like there's a difference depending on how a debt is written (charged off, 120 days late, whatever)? Or am I just over complicating this?

I AM paying off this stuff, one way or the other. I AM trying to negotiate the best possible outcome. But in the end, if no one will work with me, what's the worst paying this stuff off is going to do to my credit and to the reporting time of 7 years?

I'm really hoping to get a mortgage by this time next year. We can easily afford a mortgage and a large downpayment. Debt to income ratio is negligible. It is entirely a FICO/negative unpaid tradeline problem keeping us from getting approved.

Help? :confused:

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What I don't understand is the effect paying these off is likely to have on my credit, both in terms of if I can get a paid-as-agreed or not. Associated with that, I don't understand what a paid-in-full (regardless of how reported) on an old debt will do to the 7/7.5 reporting years.

PFD is the only way to go if you are going to pay at all. A paid CO or bad debt is no better than an unpaid one as far as the CRA scoring model is concerned. As a matter of fact, your score may drop if you make any payments because the DOLA may be updated and make the debt look newer.

I think I understand correctly that something bad remains on your credit for like 7 years based on the DOFD or date of last partial payment. What happens if you have a debt that has been reporting for like 4 years, and you pay it off in full? If they mark it as paid after collections or whatever, is it now going to be 7 years from when I make that full payment before it ages off?

The debt will drop off from the DOFD and will not be affected by when you actually paid it off.

Like medical bills that are with collections. I'm trying to get them pulled back by the OC, but I may just have to pay the CA and suck it up. How does that impact my credit and does the 7 years reset when I send in payment?

Medical debts are generally considered goods and services and have a different SOL than contract or open accounts. Medical debts normally fall under the UCC and usually have shorter SOL. Same goes for utility bills, cable, phone, checks and etc (however, your state may have a specific bad check program that can stick you longer).

IMO i would never pay off any debt that is not going to to help your credit situation unless I'm avoiding a judgment. I know some people are going to think that's wrong, but that's just me. Of course, there are other situations where I might pay.

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"...the effect of paying these off..."

The FCRA 1681c, Subsection 605 it gives the time limits of Reporting Period and an absolute formula for its' beginning. Nothing LEGALLY changes it, not paying the debt, not disputing, nothing.

However, PIF or making payments (in some states making a promise to pay) can reset SOL, which is state law that determines the length of time you may be sued to recover money owed. You need to check your state's laws to be sure and not rely on general advice.

Yet another aspect is the effect paying has on scores. FICO-based programs mistakenly use the 'date last reported' to gauge the recentness of the info. Any update of a defaulted TL combines with the derogatory status to generate a drop in score. This hits in the History category of scoring, which currently factors as up to 35% of the total number. So, PIF a defaulted account MAY cause a drop in score, depending on how/when it was reported previously. This can also happen from a dispute or any updating of the TL for any reason, including customary updates according to company policy. This negative effect is why you will see posters here recommend to NOT pay. (they may feel) Why do the 'right thing' when I will be penalized for it?

So when you ask 'does paying off a defaulted debt hurt me?', it depends on what you mean by 'hurt'. It MAY cause a drop in your score. If you need a higher score for a loan, that definitely qualifies as hurt. But many lenders like to see derogs paid prior to loaning you more money.

Since your aim is ultimately a morgage, you may wish to seek advice from a mortgage professional. Borrowers are primarily qualified by score. But many others factors are involved also. If you do (or will by next year) have adequate scores and your specific lender requires all derogs to be paid, it can be arranged to pay at closing. That way, your score isn't impacted by updates.

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"...the effect of paying these off..."

The FCRA 1681c, Subsection 605 it gives the time limits of Reporting Period and an absolute formula for its' beginning. Nothing LEGALLY changes it, not paying the debt, not disputing, nothing.

However, PIF or making payments (in some states making a promise to pay) can reset SOL, which is state law that determines the length of time you may be sued to recover money owed. You need to check your state's laws to be sure and not rely on general advice.

Yet another aspect is the effect paying has on scores. FICO-based programs mistakenly use the 'date last reported' to gauge the recentness of the info. Any update of a defaulted TL combines with the derogatory status to generate a drop in score. This hits in the History category of scoring, which currently factors as up to 35% of the total number. So, PIF a defaulted account MAY cause a drop in score, depending on how/when it was reported previously. This can also happen from a dispute or any updating of the TL for any reason, including customary updates according to company policy. This negative effect is why you will see posters here recommend to NOT pay. (they may feel) Why do the 'right thing' when I will be penalized for it?

So when you ask 'does paying off a defaulted debt hurt me?', it depends on what you mean by 'hurt'. It MAY cause a drop in your score. If you need a higher score for a loan, that definitely qualifies as hurt. But many lenders like to see derogs paid prior to loaning you more money.

Since your aim is ultimately a morgage, you may wish to seek advice from a mortgage professional. Borrowers are primarily qualified by score. But many others factors are involved also. If you do (or will by next year) have adequate scores and your specific lender requires all derogs to be paid, it can be arranged to pay at closing. That way, your score isn't impacted by updates.

Amen.

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