Should I pay off an old credit collection?
Should I pay off an old collection on my credit report to improve my FICO score?
I had a question from Chris about a four year old collection he had on his credit report. He owed less than a hundred dollars and was wondering if he should pay that off? Chris was kind of going back and forth whether he should pay off his collection or ignoring it and let it drop off his credit report in three more years.
My advice is that he should probably let that collection go and not pay it. If he were to pay off that four year old collection, Chris will wind up with a paid collection as a today, rather than unpaid collection from four years ago.
When you are thinking about paying off old collection you have to consider the date reported. The older the reporting date (regardless of payment status) the better. If Chris were to pay off that collection he would be changing the date reported to today. The result of that action will temporally make his credit score go down. Chris would reset the clock for that activity (Date Reported) which could then keep that collection on his credit report for another seven years from that point.
A four-year-old collection with a small amount like that you’ve really got to let that go and let it run its course. Now Chris did check the state statute of limitations it is varies by state (although the Fair Credit Reporting Act is a national law). Chris said his State law was seven years, so three more years the collection will fall off. The funny thing about this type of situation is because of the FICO score cards work in the background. Chris can actually benefit from that small collection from so long ago. It actually allows him to be scored on an easier scorecard that has an easier range for him to score on. It’s kind of complex, just remember that if you do have a collection account and it is less than a hundred dollars, and four years old, don’t worry about it, focus on other things on your credit report.
If you’re looking for other ways to improve your credit score please go to GetLoanReady.com you can get free videos and worksheets to increase your credit score from a more holistic perspective. Never Pay Collections
If you want to see more videos about credit and credit scoring check these out at www.thecreditguy.tv. If you are a mortgage lender please share this on your Facebook or LinkedIn page. If you have any questions, leave them down below I’d be happy to answer them.