• Tamara

Yikes, you paid a collection account & your score dropped!

Updated: Feb 3


THIS IS HOW DOING "THE RIGHT THING" COULD BACKFIRE Unfortunately!!


We felt an extreme need to revisit this topic as we receive an enormous amount emails looking to enroll after already investing thousands of dollars paying derogatory

debts and either their score decreased or didn't move at all.

ONE OF THE BIGGEST DECISIONS A CONSUMER CAN MAKE THAT CAN BACKFIRE IS PAYING A COLLECTION ACCOUNT, CHARGE OFF OR REPOSSESION OFF AFTER ITS ALREADY CLOSED OUT IN A DEROGATORY STATUS!




What really happens when you pay a collection or negative account...…


The act in paying a negative and closed out account will erase the balance BUT will not erase the history of the account.

The negative history is what's hurting you when the account is closed, not the balance. Balances are only a factor on open accounts. Paying a negative and closed out account can also reset the statue of limitations of when the company owed can legally sue you and can also add an additional seven to 7 years to report from the last payment received.



Definition of a negative account: An account that has been closed out with a status of either charged off, repossessed, foreclosed or a collection account just to name a few.

Most will have an outstanding balance.


Lets take a few seconds to break down how negative and paid debts work.


When you think of a negative item, think of an ex-felon in a sense. You did something wrong in the past or perceived to whether you are innocent or not once you are found guilty it shows on your record.

After you serve your time and paid your debts to society you are supposedly free of being accused of something from your past, but it never really goes that way right? When a felon is released from prison they will unfortunately still be judged based upon what's on their record. Think of a criminal record like you would think of a record of your credit history!

Both are legally kept information about your past.... So just like your criminal record could be reported for a specific amount of time. It's the same as a closed out and negative account. The negative history is still on your record for a period of 7-10 years and will contribute to help how creditors judge your risk level.


For example:

Client #1

Has 7 accounts listed on her credit reports

4 Negative closed items

3 Open and in good standing accounts

4 of the negative accounts were deleted (no pay offs)

Now client #1 has 3 accounts reporting

(all positive)

When she goes to apply for new credit, the new creditor will only see the 3 positive accounts not the 4 accounts that were negative & deleted. This helps with her approvals as there is nothing negative reporting anymore.


Client #2

Has 3 positive and in good standing accounts

Also has 4 closed accounts in good standing now BUT that has negative history (paid but was late).

Creditors will judge him or her on their entire history and use that Information to determine this clients risk factor.

If you are an at-risk consumer, creditors will either:

Flat out deny you

Your limits on credit cards will start very low

The creditors might approve but your interest will be HIGH


**Negative accounts can remain on your credit reports for 7-10 years starting on either the charged off date OR the last payment.


Here's how your score could actually drop from paying closed out and negative accounts:


Ex: Lets take a negative account that was closed out for several years, the moment you make a payment after it has aged that payment now updates the last status date.

The newer the last status date on a negative account the more it affects your score and credit worthiness. That newer date now affects your score as if it was a brand new collection or charge off. So the question now is....


*****Are you paying off a negative account to improve your credit or are you paying it off to improve your relationship with the company you owe a debt to?


WE WILL NEVER TELL SOMEONE TO 'NOT' PAY OFF A DEBT THEY OWE, BUT CAN INFORM YOU OF WHAT HAPPENS WHEN YOU DO.


Sometimes it unavoidable so for instance......

If you move into a neighborhood that only use a utility company that you owe money to so in that situation many will pay that collection for that reason.


So while many of you are trying to do the right thing you must be very mindful of how you choose to spend your money and make sure it doesn't come back to harm you.

Being strategic in how and when you pay can save you thousands of dollars and help improve your credit!


If you are looking for assistance and have no interest in repairing your own credit then we are more than willing to assist you with reaching your goals once you are ready for that journey.


Click the link below to get started!


https://www.cognitoforms.com/TheCreditLifestyle/clientapplication



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The Credit Lifestyle

P. O Box 386

Bear, De 19701

info@TheCreditLifestyle.com

302-455-2453

 

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