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May 07

Collections on a Credit Report

9am this morning, a lady filled out an application on my web site and I received the notification by email.  Her credit report listed multiple collection accounts and a judgment for nearly $1,000.  Four of the collections were sizable medical bills and a couple of small ones from utility companies.  She acknowledged the judgment and the utilities but said the medical bills should have been covered by insurance.  She was not aware they were in her credit file.

She said her tax refund was due any day and as soon as it arrived she would pay off the judgment and the utilities, in the meantime would contact her insurance company and get to the bottom of the medical bills.  Regardless, she would do whatever is needed to clean up the mess so she could buy a home.  I bet she will follow through on her promise to herself, I was just helping out, she wasn’t promising me.

Contrast, around 11am a gentleman called me saying he was ready to buy a home, asked if I remembered speaking with him last year.  Not really, but I pulled up my notes and it was two and a half years ago, not last year.   Back then he had a total of 14 collections on his credit report and I asked if he had taken care of them.  He acted surprised by my question and asked what they were.

When we last spoke I suggested he begin by paying off the smallest collection first because it was only $25.  So I asked if he had paid it as we discussed. Nope, how about the next one that was only $40? Nope, none, nada, zip, hadn’t paid off a single one.  Combined, all the collections totaled $9,000 but he hasn’t paid a single dollar towards any of them.

He is further away from buying a home today than he was back then; underwriting guidelines have tightened up since then.  If he had followed my suggestions he could be moving in a few weeks.

The wrong way to handle collections is to dispute them.  It is what it is, and disputing accurate information on your credit report just because it is negative in nature is fraud if the purpose is to get a loan.  Besides, having open disputes on a credit report can get a loan application declined.  Underwriters do not like loose ends.  Key point, have you ever tried to remove a dispute from a credit report?  You must dispute the dispute, HAHAHAHA!!  Don’t do this!

Can you offer less than owed on a collection?  Absolutely, but it doesn’t look good if you are trying to borrow money at the same time.  Asking one lender to take less than owed on a $1,000 account doesn’t look good to the lender you are asking $150,000 from.  But one is for a house and the other one was dinner and blue jeans.  It doesn’t matter, it doesn’t look good. 

Pay them off?  Where to start?  Start with the smallest amount that reported or updated their info most recently.  A $25 collection that reported or updated their status last week will cost more points on your credit score than a $2,500 collection that hasn’t been updated in a couple of years.  

Check out the related info on the page, CreditXpert™.

 

 

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