Don’t payoff collections and charge-offs!!!
The challenge with any credit restoration program or process is that there is simply so much information to attempt to quickly relay to someone that it amounts to attempting to drink from a fire hose. In other words, getting bombarded with too much information too quickly can have an adverse affect on your forward progress and momentum because it is very easy to get quickly overwhelmed.
Before we continue, one thing that needs to be covered to ensure that you don’t accidentally hamstring yourself is an extremely important directive, and that is simply this:
DO NOT PAY OFF COLLECTIONS AND CHARGE-OFFS!!!
And if you are currently in a payment plan or re-payment plan with a collection agency for a collection account, stop paying them immediately until you understand the information I am about to give you.
- First, and this is a hard one for most people to swallow thanks to corporate media and governmental brainwashing but, you don’t owe the money
- Why payoff something when you can get it completely and permanently legally deleted for free?
- When you payoff a collection account or charge-off, it actually makes your credit worse. I realize this isn’t what you’ve been brainwashed into believing but it’s true. The reason for this is very simple. When you payoff the collection or charge-off, you refresh the date of last activity on the account. Why is this important? Because under federal law, collection agencies and creditors can report the derogatory account 7 years from the date of last activity. So, when you payoff a collection account or charge-off, especially one from years prior, you actually lengthen the time it will take to achieve perfect credit by another 7 years. Not too smart, is it?
- There is no benefit to you in paying off the collection or charge-off. Think about it for a minute. You payoff the collection or charge-off and the company that says they lost money on you and had to write off your account then becomes whole (paid in full with no loss) and then, they kindly continue reporting that derogatory account for another 7 years. If they get everything they are supposed to (i.e., full payment) and are made whole, why aren’t you? Why don’t you get to have the item either deleted or reflected to show a perfect payment history? Why should you have to suffer with a lower than necessary credit score and pay higher interest rates and than necessary
Now, if you are presently trying to qualify for a mortgage, one of the first things your loan jockey will do to is regurgitate what he or she says that the underwriter says the mortgage underwriting guidelines are. They will generally tell you that to qualify, you need to payoff any unpaid charge-offs or collections. I’ve heard it a thousand times.
Painfully, when I was a loan jockey and didn’t know any better, I said the same things.
Here’s what they’re not telling you:
The guidelines generally merely state that you cannot have any unpaid collections or charge-offs. It doesn’t state that you have to pay them.
Because they don’t know any other way to affect this, underwriters and loan jockeys tell you to pay off any unpaid charge-offs and collections. Their objective is not credit repair. Their objective is getting you to fit inside the box necessary to qualify for the loan product you applied for.
(Underwriting guidelines change frequently and depending on what type of mortgage you are applying for, your loan product may or many not allow unpaid collections).
So, they unwittingly tell you to shoot yourself in the foot and pay off any unpaid collections and charge-offs. There are numerous inherent problems when you do this:
- It doesn’t aid you in credit repair
- You don’t owe the money to begin with
- You just admitted owing the debt (STUPID!)
- You just refreshed the date of last activity
- You just prolonged having a lower credit score
- You just liquidated capital that could have been used for investments
- Uh, and this is the big one, it doesn’t guarantee loan approval
- It oftentimes requires you to liquidate and expend cash that’s necessary to get your loan approved and closed like money for down payments, reserve requirements, closing costs, pre-paid items, etc.
There are few things worse than blindly following some loan jockey who is telling you that the one and only last thing you need to do to get your loan approved and close on that big beautiful new dream home is pay off your old collections only to pay them off and still get your loan denied. Now, you’ve spent cash, received no benefit and have to find a rental.
So, what do you do if you have collections and charge-offs?
Take them through the dispute, debt validation and/or debt investigation process.
Become a member below and get started immediately.
***We are not a credit repair company. Never have been. Never will be. You don’t need a credit repair company. You need you empowered with the knowledge, documentation and resources that credit repair companies have and some elbow grease. That’s it. Want that knowledge? Get it here.***