September 21, 2017
 
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Should You Pay Old Bills?

For borrowers who are considering paying off old debts, delinquencies, charge-offs or collection accounts, it’s important to know some basic knowledge of how the “system” works before making contact. There are so many factors to consider, including the ethical obligation to pay what is owed. However, in some cases, doing the right thing can negatively affect your credit score for a period of time, but it still may be worth it when you weigh the short-term and long-term concerns.

 

Be aware of some possible problems:

·        Making a simple inquiry about past-due account can revive the creditor’s interest in receiving payment, starting up annoying collection calls again.

·        Arranging a payment plan on an old debt may restart the statute of limitations in some states, reopening the possibility for a creditor to sue you.

·        Trying to “settle” accounts for less than the amount owed can hurt your credit score.

·        Unscrupulous collection agencies can promise to “fix” how the debt appears on your credit report if you pay up, and then fail to follow through with their end of the bargain.

 

There are also other factors to take into consideration:

 

·        Even if a creditor “charged-off” an account, your credit report can still show a balance owed. Just because an account is considered a charge-off, doesn’t mean you no longer have to pay the debt! Not sure what charge-off means? Usually after six months of nonpayment, a creditor can “write-off” the account and consider it a bad debt. The write-off can be reported to the credit bureaus as a charge-off and then turned over to collections, either internally or to an agency.

·        If you pay your debt, it may be worth your while to ask the original creditor to report to the credit bureaus that the account was paid in full. It’s better for your credit score to have a zero balance.

·        Fair Isaac Corp., creator of the FICO score, considers the length of time since a borrower has had a negative mark on their report. The more recent the problem, the more it weighs against you.

·        More recently, Fair Isaac has developed a scoring formula that can distinguish between new payments and actual new delinquencies, which is good for consumers.

·        A mortgage lender may require you to pay off any collections as a condition of approval.

·        Dealing with a creditor or a collection can also yield different results.

·        It is advantageous to pay a lump sum rather than setting up a payment plan.

·        Find out the statute of limitations in your state.

 

If you’re uncertain about the best decision for your particular situation, your best bet is to contact a non-profit credit counseling organization to help you sort it out.

 

 

 

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