[ad_1]
Collections: pay them back or leave them alone?
Personal finance experts recommend that you check your credit report before applying for a mortgage. If you find any reporting errors, you can work to get them removed before you apply for your home loan.
A new quick score can remove incorrect information from your report. The process is known to increase scores by 100 points or more in a matter of days.
But what if your credit report contains a collection account and it’s not a mistake?
Should we pay him or leave him alone?
Sometimes paying off a collection account can hurt your credit score, as counterintuitive as it may sound.
Your options depend on what type of collection you have and how long you’ve had it.
Check your new rate (August 4, 2021)
What to do with old collections
If you have a collection account that is a few years old, you’ll want to dig a little deeper.
Check the local statute of limitations
Each state has statute of limitations on debt collection – typically three to six years.
Bill collectors cannot sue to collect debts if they are too old.
However, you might accidentally restart the clock, making the debt collectible again, if you admit that you owe the money, make a partial payment, or even promise to pay part of it.
Delete erroneous or obsolete information
You don’t actually owe the money. Old debt is a huge industry. Buyers buy the right to collect written off accounts for pennies on the dollar and then attempt to collect them.
However, they don’t necessarily verify that the debt is real and yours. You may never have owed it, or you may have paid off years ago.
Do not reactivate the account
It sounds silly, but paying the account could hurt your credit score.
Collection accounts are considered serious derogations on your credit history, and they bring your score down dramatically.
However, the older the account, the less damage it causes to your credit score.
Paying for an old collection makes it look new to the credit bureaus, and you can actually hurt your score.
How to manage an old collection? First, don’t talk to any debt collector who contacts you about an old debt. You don’t want to accidentally restart the clock.
Ask for written documentation proving that you owe the debt and indicating that the collector is authorized to collect it. If they can’t prove that you owe it, dispute it with the credit bureaus.
If a collector tries to report an old debt to the credit bureaus as if it was new, it’s a violation of the Fair Credit Reporting Act, and you can have it removed. You can also force the creditor to stop contacting you about a debt with a written request.
Check your new rate (August 4, 2021)
Establish payment for large collections
If you have a large debt, many lenders add five percent of the outstanding balance to your debt payments, thereby reducing the amount you are eligible to borrow.
If you have a balance of $ 20,000, for example, FHA lenders add $ 1,000 to your monthly debt service. This could destroy your chances of qualifying for a home loan.
Establish a repayment plan with the creditor. The actual payment will be used.
Removal of new collections
Your lender may require you to pay off a recent collection account. Fannie Mae, for example, says: “Overdue credit… that [has] the potential to affect Fannie Mae’s lien position or decrease the borrower’s equity must be repaid on or before closing.
That’s why you might want to pay off a new valid collection before you apply for a home loan. However, you must negotiate the declaration of this debt when discussing repayment terms.
When an account is in the process of collection, your credit report will likely take two hits: the first from the original creditor and the second from the collection agency.
The collection agency or the original creditor may be willing to clear their negative report in exchange for payment.
Check your new rate (August 4, 2021)
How to negotiate with collection agencies
If you want to pay off the debt in full or start a repayment plan, you are probably better off negotiating with the original creditor.
Contact them first to pay off the debt and remove the negative ratings from your credit report. If they refuse to deal with you, send a letter to the collection agency. You can find some good sample letters online that you should be able to adapt for this purpose.
Don’t tell the creditor you’re trying to get a mortgage. This puts you in a weak negotiating position.
Get the agreement in writing. Ideally, a letter from the creditor confirming to you that they own the debt, detailing the agreement, and promising to remove the collection and write-off from your credit history.
You can also send the creditor a letter explaining the agreement you want and asking them to sign and return it before sending them money. Send a copy of the signed letter to the collection agency.
Check your new rate (August 4, 2021)
More leniency for medical collections
Medical collections generally don’t have to be paid off until your mortgage closes. They also don’t hurt your credit score as much as other collections. If you pay them back, they don’t continue to hurt your FICO.
Collections can require a variety of answers – you may be legally obligated to repay them, morally obligated to repay them, or have no obligation at all. If you’re not sure, a good mortgage lender can help you sort it out.
What are the rates today?
Mortgage refinancing rates, as well as home buying rates, are low, making home ownership affordable.
Get a mortgage quote now. Quotes don’t require a social security number to start, and there’s never any obligation to continue if you’re unhappy with your rate.
Check your new rate (August 4, 2021)
[ad_2]
