Money Matters
van01
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Pay off old collections?
I just ran my Experian report to see what is showing and I have 2 old closed out collections ($480 & $175). One is an old utility that was not turned off when we moved (long family drama) and then a hospital bill that was referred over to our insurance several times.
Sooo - do I go ahead and pay them off? I'd rather pay so they are clear but will it hurt my credit score since it will be re-opening an old account?
I'm trying to do the ground work to build my score to purchase a house next year.
Re: Pay off old collections?
The above happened to me. I had a bogus $100 collection when I was getting ready to close on my house. The bank forced me to pay those scammers or they wouldn't let me close on the house. Meh! At least it was only $100. The bank let me know this requirement in enough time that it didn't delay my closing.
But for you, OP. How old are these collections? If they one/both of them are more than 7 years old, you can send letters to the three credit bureaus asking they be removed from your credit report. If you go this route, write a separate letter for each collection posting. Don't lump them together in the same letter.
I've been going through the process lately of re-building my credit and learning a lot about these things... more than I really care to know. First, regardless of the credit score effect, you may feel ethically obligated to pay them. If that's the case, pay it and your score will recover from it.
Just based on effect on credit report, it depends on how old the items are. If they are older than 7 years, you can write the credit bureaus to remove them from your report. Newer defaults count against your score more than old items... 2 years seems to be the cut off. Everything I've seen says that if newer than 2 years old, it will help your FICO score to pay them off. If it's older than 2 years, it may hurt your FICO score to pay them because it brings it back to a current line item on the report. It will show it as a paid collection, but that also resets the clock and that collection will be on your report for 7 years from payment date. If that is the case, you may be better off paying them after you buy a home, if you feel obligated to pay them. So, if the debt is 5-6 years old, you may be better to just wait it out and let it fall off the report. If it's 2-5 years, paying it will hurt score some now, but the overall effect is small and probably balances out in the long run. But, timing is everything... the farther you are from negative line items, the better. If you are looking to buy a home next year, that may be enough time to pay them now and get enough distance away from them to be okay.
And like others said, if buying a home or car, they may require you to pay old debts before giving you a mortgage. I'm currently trying to fix my credit to buy a home. My mortgage banker is okay with old collections, as long as there aren't any outstanding judgments and all current accounts are paid up. He's told me not to bother with my old debts now because it would hurt my score more than help. And the ones I have are past statute deadlines for lawsuit, so banker knows that they won't come and try to put a lien on the home for those old debts, which is what they are most concerned about.
Oh, another wacky story in the "collections vs. buying a home" discussion.
I had a coworker who was about to close on a condo. When a $43 collection from a mom and pop car rental agency popped up. That collection was about 5 years old, but the bank wouldn't close until it was resolved. Long story short, the company had filed bankruptcy years earlier. I teased him it was that 43 bucks that put them under.
He contacted their bankruptcy attorney and explained the situation. The bankruptcy attorney was really sympathetic, but told him there was nothing that could be done. There was literally no one to pay, because the company no longer existed. But there was also no way to get it off the credit report, because the company no longer existed. My coworker was finally able to close on the condo, but only after he changed to a different bank that was not going to make an issue about the old debt.
@princessleia22, that does make a lot of sense! Though, like you pointed out, I think in my coworker's case it worked out a lot better to just switch to a different bank for the loan due to the time crunch.
But great advice for anyone facing a similar, weird similar situation like that.
@MommyLiberty5013, Unfortunately, I don't know. It happened to a former coworker and, if he even told me which bank it was, I don't remember.
Though I do remember he said the debt happened because he returned his rental car on a Sunday...but they were closed on Sunday...and so charged him all the way to Monday. To which he thought to himself, "screw them, I'm not paying for another day I didn't use,", never paid them, and forgot all about it. Until it reared its ugly head again 5 years later!