Best Way to Payoff 4 delinquent items

[timbonh]

Hi Folks -

Been looking to get a decisive answer on this to no avail: I presently have a 614 and have worked to get my reports all cleaned up. After disputing all items, I am down to 4 legitimate delinquent items, 3 of which offered me a lesser settlement amount. I could easily just pay the 4 items off immediately, which would leave my report as virtually no data, save an old car payment account showing closed and PIF, and my old mortgage showing closed and PIF. Or, I could get a cash-secured loan for $2k to pay them off and start building my credit. My question is this: Would I be better off doing the cash-secured loan now to pay them off or just paying them off then going back to looking into getting a cash-secured loan in say 30 days when my score has crept up a bit? Trying to avoid doing one or the other only to find out I have "made a common mistake" later. Your eagerly anticipated advice is greatly appreciated!

Thanks!! - T

[Harry Seaward]

11 hours ago, timbonh said:

I could easily just pay the 4 items off immediately, which would leave my report as virtually no data,

Have you already spoken to whoever is reporting the entries on your credit report? They don't typically delete when you pay off the debt, so don't just assume this will happen. 

What is your endgame? Just to have a better credit score, or are you planning to buy a house or car or something? How much of the 7-year reporting SOL is left before the 4 items would fall off on their own? 

[timbonh]

1 hour ago, Harry Seaward said:

Have you already spoken to whoever is reporting the entries on your credit report? They don't typically delete when you pay off the debt, so don't just assume this will happen. 

What is your endgame? Just to have a better credit score, or are you planning to buy a house or car or something? How much of the 7-year reporting SOL is left before the 4 items would fall off on their own? 

Hi Harry -

I have spoken to the 4 reporting agencies and yes, was advised that they update it as "settled" or "paid" but don't normally take the item off the report. Since all 4 told me the same thing on removal, I assumed that was just the way it works. I'd love to find out I am wrong and can demand they remove it, but I doubt it is the case.

The items are 3 yrs to 1 year old, so the "ignore til they disappear" approach is not an option.I need to deal with them immediately anyway so that I will qualify for a Parent-Plus loan in a couple of months for my son's fall semester of college.

My endgame is #1 what I just mentioned and #2 to just have a better score as soon as possible. I have a great job and it is only my own fault that I have let this fester as long as I have. I'm curious if paying the debts with a cash-secured loan would expedite my score improvement or if just paying them off then securing the loan would be just as quick regarding score improvement, and potentially lead to better overall score improvement results.

[Harry Seaward]

Paid collections are still collections.  There's little difference in your score from paid vs. unpaid.  In fact, if any of the collections have not had any reporting activity for several months, you may see a score decrease when you pay them since the update to report the "paid" status refreshes them as 'recent' collections.

Having said that, and in regard to #1, a potential lender will usually look more favorably on a collection that has been paid than one that has not, even though your score may not reflect the difference.

As far as #2 goes, the best thing you can do is get the derogatory accounts off your report.  That will give you the fastest score boost.  Second to that is paying down any of your currently open/active credit cards to around 5%-10% of your limits.

[timbonh]

I have zero other open accounts, so there is nothing needing to be paid down. I realize this drags my score down too, due to zero credit utilization. I'll work on that.

So I guess your answer/opinion is that I would be better off (from a speed to better credit rating perspective) paying them off and then seeking a cash-secured loan to start the rebuild? As opposed to getting the cash-secured loan to pay them off and start the rebuild at the same time?

Also, if anyone knows...is there ANY way to get delinquent payments off my report once I pay them? Has anyone successfully negotiated an "I will pay immediately if you promise to remove from my report within thirty days of payment" type arrangement? Is that even possible? My collections are all with collection agencies, Comcast, Verizon, a gas utility and a medical bill were original creditors.

Thanks in advance for any advice!

[Harry Seaward]

41 minutes ago, timbonh said:

So I guess your answer/opinion is that I would be better off (from a speed to better credit rating perspective) paying them off and then seeking a cash-secured loan to start the rebuild? As opposed to getting the cash-secured loan to pay them off and start the rebuild at the same time?

The sooner you get the loan, the sooner your score will improve with the new credit line, but it will still take several months of payments to start seeing the score go up.  The problem is any new line of credit is scored as a higher risk, so I think if it were me, I'd hold off on the new loan just so you don't have a new line of credit pop up right before you apply for another new line.

I don't think it really matters how you pay the collections.

48 minutes ago, timbonh said:

Also, if anyone knows...is there ANY way to get delinquent payments off my report once I pay them? Has anyone successfully negotiated an "I will pay immediately if you promise to remove from my report within thirty days of payment" type arrangement? Is that even possible?

This is referred to as "pay for delete".  These arrangements were fairly successful years ago but for a variety of reasons, most creditors and collectors don't do it anymore.  It certainly never hurts to ask, and be prepared to pay full price for the consideration of having the credit line removed.  And FYI, all of the creditors/collectors will say "we'll mark the entry as paid/settled/satisfied", as though that's the same thing as deleted, but it's not the same thing.  Be prepared to push for deletion, but don't be surprised if they refuse.

[fisthardcheese]

6 hours ago, Harry Seaward said:

Paid collections are still collections.  There's little difference in your score from paid vs. unpaid.  In fact, if any of the collections have not had any reporting activity for several months, you may see a score decrease when you pay them since the update to report the "paid" status refreshes them as 'recent' collections.

Having said that, and in regard to #1, a potential lender will usually look more favorably on a collection that has been paid than one that has not, even though your score may not reflect the difference.

As far as #2 goes, the best thing you can do is get the derogatory accounts off your report.  That will give you the fastest score boost.  Second to that is paying down any of your currently open/active credit cards to around 5%-10% of your limits.

I disagree.  A collection with a current balance on it is far worse than a collection with a $0 balance.  There will be a significant score boost just on reducing the balance owed.  As it sits now, OP likely has a negative debt-to-credit ratio that is tanking their score.  I believe the short term "hit" they would take by updating the collection account to $0 is far less than the boost getting it to $0 will have, giving them a net score increase.

[Harry Seaward]

4 hours ago, fisthardcheese said:

As it sits now, OP likely has a negative debt-to-credit ratio that is tanking their score.

AFAIK, collection accounts, like installment accounts, are not factored the same way as a revolving account when calculating utilization. There is no 'credit limit' to compare the balance to. 

[timbonh]

As an aside, but relevant to the conversation: It's interesting that I disputed the 4 items I described, all 4 updated to current dates because I did so, then shortly after my dispute items all closed and they were verified as me owing them, my credit rating jumped from ~570 up to 614. Still baffled as to why...

I think at this point, based on your feedback, I will recontact the agencies and give another shot to the "pay for delete" approach. Even if I get only one to agree, it's a start. I might then go back after they all show as paid and dispute them again to try to have them removed in that fashion. It sounds to me that paying them off with a cash-secured loan vs. paying them off directly with my funds wouldn't impact much of anything, save perhaps getting me on the road to a slightly better score marginally more quickly.

I truly appreciate both your feedback & assistance!

[fisthardcheese]

2 hours ago, Harry Seaward said:

AFAIK, collection accounts, like installment accounts, are not factored the same way as a revolving account when calculating utilization. There is no 'credit limit' to compare the balance to. 

This could be right.  It's been several years since I had a collection account.  I do know that regular loans count against your available credit even though they do not add to your "available credit" because they are not a revolving account.  Therefore, I assumed a dollar amount in collection would also be added to your debt side just like a loan is, even though there is no addition to the "credit" side to balance it out.

But either way, I do remember from my experience that reducing the collection balance had a better gain than the hit my score would take on updating the collection to a current updated status.

[Harry Seaward]

8 hours ago, timbonh said:

my credit rating jumped from ~570 up to 614

Your FICO went up, or is this a score from Credit Karma or some other site like that?  Only MyFICO can give your your 'real' scores.

Having said that, it does make sense that "closed" status would score higher than an "open" collection.  IIRC, "open" is technically not a correct reporting status for a collection account anyway, which is probably why they updated to "closed".

[Mr. Mann]

On 3/24/2019 at 10:55 PM, timbonh said:

 

Hi Folks -

Been looking to get a decisive answer on this to no avail: I presently have a 614 and have worked to get my reports all cleaned up. After disputing all items, I am down to 4 legitimate delinquent items, 3 of which offered me a lesser settlement amount. I could easily just pay the 4 items off immediately, which would leave my report as virtually no data, save an old car payment account showing closed and PIF, and my old mortgage showing closed and PIF. Or, I could get a cash-secured loan for $2k to pay them off and start building my credit. My question is this: Would I be better off doing the cash-secured loan now to pay them off or just paying them off then going back to looking into getting a cash-secured loan in say 30 days when my score has crept up a bit? Trying to avoid doing one or the other only to find out I have "made a common mistake" later. Your eagerly anticipated advice is greatly appreciated!

Thanks!! - T

Anybody that runs into this situation should do a pay for delete. If and when you pay the collections agency, your credit score will drop very fast because it brings the collection account current along with allllll bad data. Negotiate for the pay for deletion or eradicate all late pays and make it paid as agreed. Before you pay what was negotiated, get it in writing and use a money order because they might take the whole amount. The note you get , is evidence on letter head.

[Harry Seaward]

13 hours ago, Mr. Mann said:

Anybody that runs into this situation should do a pay for delete.

Pay for delete is essentially nonexistent anymore. The whole point of credit reporting is so that potential lenders know what they are getting themselves into with a consumer. If Bank A deletes derogatory info, it later screws Bank B. Bank A and Bank B (and C, D, E and F) have therefore all agreed via coalition not to delete legitimate tradelines.

A very few creditors and debt buyers will do it if it's a high value debt (+$10k) and a recently charged-off/ purchased debt, but most could care less about getting paid if deleting the tradeline is a condition.