Should you pay off old medical collections?

Should you pay off old medical collections?

I had a recent question from James, he had two medical collections that were a few years old, both for less than $200 and his credit goal was to generally improve his credit. James did not have a new mortgage application or any large loans coming up shortly.

James wanted to know should he pay those two old medical collections or ignore them and let them fall off naturally. Medical collections like all collections will fall off seven years after the date of first delinquency. Depending on the state, collectors still have the right to attempt to collect on the debt for longer than 7 years. It will not, however, appear on their credit report after 7 years as stated in the Fair Credit Reporting Act.

When negotiating, the consumer should never admit that the debt was theirs. Their goal should be to try to get the collector to agree to remove it completely from their credit report. Some collectors will do that some will not. If the collector refuses. Then consumers should negotiate to pay less than the full balance. Many times collectors will take 50 cents on the dollar, 30 cents on the dollar, 20 cents on the dollar, 70 cents on the dollar. Consumers should negotiate to the lowest amount the collector will accept. Be sure to get something in writing from them on company letterhead, signed that says that this debt has been settled for less than full balance., or paid in full.

Now that is going to temporarily hurt consumers credit score on some scoring models, that’s the important part. If the lender is using FICO®9, that will actually improve their credit instantly. With FICO®9, When consumers pay a collection it is no longer figured into the FICO®9 scoring model. That is one of the important improvements of FICO®9 when consumers pay off a collection, it is removed from their score.

Alternatively, FICO®5 which is the version that everyone in the mortgage industry uses. Paying that same collection will hurt their credit especially if it was two or four years old. When that consumer pays that collection it’s like they just had that collection, rather than four years ago. If they are trying to get a mortgage they would not want to pay old collections off. They could pay that collection off after mortgage closing or try to settle it at that time. The consumer should not pay any collections before they talk to a mortgage professional.

If they are just trying to generally improve their credit and they are not going to get any kind of a major purchase in the next year then settle the debt. Getting the closing date established then expect a year for the FICO®5 score to improve. consumers will be better off regardless of how old that debt was.

When consumers settle that debt and it stops reporting, the more time that goes by the better off they will be.

If you’re looking for more information on how to improve your credit regardless of where you’re starting from or especially if you’re a lender, if you’re a mortgage provider, or if you’re a credit union employee. Get Transform Your Credit it’s a rewrite of my original book and I just finished it. It’s available on Amazon and on my website, if you go to get loan ready.com you can get the six steps to improve your credit and you can also buy a digital copy on the website. Go to Amazon to get a hard copy like the ones that I have here.

Should you pay off old medical collections or let it fall off naturally?


Should you pay off old medical collections?
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Should you pay off old medical collections?

Get your copy now on Amazon
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Get your copy now on Amazon

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