Myths of Credit Repair pt.1
As promised, I am going to spend the next couple weeks talking about Credit Repair Myths.
If you have already been reading this blog, you will know my true feelings for most credit repair organizations. It's not very positive! Lets just say that some of the people doing credit repair have as much business doing that as I do performing open-heart surgery. And I'm a mortgage loan guy!
I hope you will stay tuned, as some of them defy common sense. Like the one today!
Myth #1: When I pay off a past-due account, such as a charge-off or a collection, it will show "paid" and will no longer be a negative mark on my report.
WRONG. It is difficult to fully restore your credit without paying your outstanding debts. However, paying off the debt can actually hurt your credit score.
Remember that negative items can stay on your report for 7 to 10 years (while most items are 7 years, chapter 7 bankruptcy can stay on for 10). This clock starts ticking at the date of last activity and can reset after new activities. Also keep in mind that your scores take into account how recent a negative item is. For instance, a collection from 5 years ago does not depress your score as much as one from 5 months ago will.
With that said, when you pay of the outstanding debt, you can change the account status from "collection" to "paid collection". Charge-offs, judgments and others work the same way. While this sounds positive, look at the whole picture. For example, lets say you have a $50 collection that is 2 years old.
Since you have now paid the collection, it reports as "paid", which is good. But, it also starts the clock over for the 7 year "penalty period", which means it brings the date of last activity current. Being that a newly reported paid collection hurts the score more than a 2-year old open collection, you have just succeeded in lowering your score.
It almost goes against common sense. That's why it is best to have professional help, as you do not want to inadvertantly want to make your credit worse by trying to do "the right thing". Paying off your debts is great, but make sure it is done at the correct time and in the right way!
I'll be back with more credit repair myths soon!
Scott
Scott Swinford is an Executive Consultant for the US Consumer Credit Restoration Association and a Certified Mortgage Planning Specialist in Northwest Indiana. If you have any questions, you can send email to scott@USCCRAonline.com.
If you have already been reading this blog, you will know my true feelings for most credit repair organizations. It's not very positive! Lets just say that some of the people doing credit repair have as much business doing that as I do performing open-heart surgery. And I'm a mortgage loan guy!
I hope you will stay tuned, as some of them defy common sense. Like the one today!
Myth #1: When I pay off a past-due account, such as a charge-off or a collection, it will show "paid" and will no longer be a negative mark on my report.
WRONG. It is difficult to fully restore your credit without paying your outstanding debts. However, paying off the debt can actually hurt your credit score.
Remember that negative items can stay on your report for 7 to 10 years (while most items are 7 years, chapter 7 bankruptcy can stay on for 10). This clock starts ticking at the date of last activity and can reset after new activities. Also keep in mind that your scores take into account how recent a negative item is. For instance, a collection from 5 years ago does not depress your score as much as one from 5 months ago will.
With that said, when you pay of the outstanding debt, you can change the account status from "collection" to "paid collection". Charge-offs, judgments and others work the same way. While this sounds positive, look at the whole picture. For example, lets say you have a $50 collection that is 2 years old.
Since you have now paid the collection, it reports as "paid", which is good. But, it also starts the clock over for the 7 year "penalty period", which means it brings the date of last activity current. Being that a newly reported paid collection hurts the score more than a 2-year old open collection, you have just succeeded in lowering your score.
It almost goes against common sense. That's why it is best to have professional help, as you do not want to inadvertantly want to make your credit worse by trying to do "the right thing". Paying off your debts is great, but make sure it is done at the correct time and in the right way!
I'll be back with more credit repair myths soon!
Scott
Scott Swinford is an Executive Consultant for the US Consumer Credit Restoration Association and a Certified Mortgage Planning Specialist in Northwest Indiana. If you have any questions, you can send email to scott@USCCRAonline.com.
posted by Scott Swinford at
8:33 PM
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