Question:
Will paying collections help credit status for mortgage?
We're trying to see if we can get a mortgage (our first) but we have less
than stellar credit. According to Experian we have 7 negative items and 10
good accounts. Most of the good ones are from Auto loans, smaller credit
accounts, jewelers, personal loans, things like that.
On the bad side we have one $6,000 chargeoff, one $400 chargeoff, a late
payment account (30 days, I believe) but current, and 4 items sent to
collections (one is for $800, the others are between $50 and $150). The
items in collection are utility bills, medical bills and one apartment bill.
We know of at least one other $5000 account that is at collections and that
might even be charged off (but we're not sure). It apparently wasn't
reported to Experian.
My first question is will paying off some of the collections agencies help
my status at all? I know those accounts wouldn't get moved over to the
positive side of the report, but would paying them off somehow alter the end
formula result when they run our scores?
Second question is, with doing nothing, would it be reasonable to assume
that a mortgage lender would be at all interested in us, albeit at a higher
interest rate? With the times as they are, there are a lot of lenders
forgiving down-payments (which of course, we don't have much of one) and
rolling those in to the loan. I have a steady job and make an above-average
salary as a computer engineer. I've never had a late payment on any large
loans.
Obviously there are probably other factors but I'm just not sure. We're
shopping around now but haven't gone through an application yet.
Answer:
I'm going through a very similar situation, but lucky for you I'm a
few steps ahead so I can point out a few cliffs.
I've spoken with several lenders, and regardless of my credit score,
they're all begging me to do the loan. But the condition is that none
of them can do anything while I have debt in collections; I have to
get that off of my report, then they'll jump through hoops if I ask
them too! I have two debts; a large medical bill, and a smaller bill
from breaking an apartment lease.
Before you start paying off collections, though, heed the advice given
in the other posts here. Do NOT give a collection agency your bank
account numbers, credit card numbers, or whatever. A collection
agency, from what I've seen, is a group of crooks that are fighting
the down-on-his-luck man, and they'll lie, cheat, and steal to the
extent that the law allows them, and then some.
You can read some of my other posts in this NG, but so far one
collection agency has told me that they were a law firm (they're not),
called my parents to find my address and phone number (after I called
them first and gave them the information), then they agreed to a
monthly payment as long as I do a check-by-phone for $100 first (then
they started withdrawing more money without my permission). I've
demanded to see a copy of the contract that makes me liable for the
debt in the first place, which they can't supply (see my next post
today).
No matter what they threaten to do, tell them the only way you can
make a payment is by mailing them a money order. If you send them a
check, they will use the information to draft more money, whether it's
legal or not. Sure, we could probably sue, but who's the judge going
to believe?
