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Credit cards already in collection and closed. Should i pay them off?
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J24 wants to know:
I have two credit cards, luckly only totalling about $1,500. Im a college student and used them for books. They are under collection and i still have the oppertunity to pay them off, which i am planning on doing anyway. BUT they are still going to be on my credit for the 7 years right? And If i pay them off, will it improve my credit rating atall, will they show up as paid off on my credit report? Or will paying them off do anything atall since they are so overdue.
I have two credit cards, luckly only totalling about $1,500. Im a college student and used them for books. They are under collection and i still have the oppertunity to pay them off, which i am planning on doing anyway. BUT they are still going to be on my credit for the 7 years right? And If i pay them off, will it improve my credit rating atall, will they show up as paid off on my credit report? Or will paying them off do anything atall since they are so overdue.
Tagged with: Credit Rating • Credit Report • Improve Credit
Filed under: True Credit
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You can make a deal with the CC companies, call them up sometime you’ll only have to pay 50% (example) this won’t ruin your credit, not paying them will. Oh, and it should show up as paid off.
I was in collections a year ago. I cut a deal with the collections officer and paid it off so I could refinance my mortgage. I got a higher rate because even though I paid it off it was a black spot on my credit, but after 6 months my credit rating went back up and this year when I refinanced I had great credit again. The only thing that takes 7 years to clear your credit history in my knowledge is bankruptcy… my parents went through that and we lived in apartments for 7 years till they were cleared and then they bought a house again. $1,500 is chump change when you consider the average debt of a college student. Pay it off, you’ll be better off and life will be easier and cheaper when you have clean credit.
Since you are already in collections, you could call them and negotiate a lower payoff amount. Sometimes they will take less than what is owed. The drawback to that is that on your credit report for 7 years it will say something to the effect of “settled for less than owed”.
The other option is to pay it in full but make sure you get them to say so on your credit report. If you pay by check, put “PAYMENT IN FULL” in the memo section. If you pay over the phone, ask them to mail you a letter to confirm payment. You will need to show the credit bureaus this letter if there were ever a dispute.
After you pay them, wait 30-60 days and go to annualcreditreport.com to get one of your 3 free credit reports for the year. Make sure it says what it is supposed to say – if not file a dispute (they will give you links to do that).
Once credit cards are charged-off, the main damage is already done and this will be noted on your credit files for seven years…starting on the original date of delinquency.
It’s important for you to realize that cutting checks for $1,500 will not undo the damage of a charge-off and magically repair your credit. Paying off charged-off debt may slightly improve your credit at best. If you plan to pay the debt collectors, get all terms in writing PRIOR to paying them one penny….never accept verbal settlements about debt over the phone. Never give debt collectors you checking account # to pay….pay only via USPS money order.
Here is the problem.
When you pay off a debt that is in collections, all the creditor is required to do is show “paid” on your credit report, and that it now has a zero balance. But all of the other negative information is still there. Late fees, charge off’s, collections…..it’s right there, and it will continue to hurt your score until the 7 year reporting period expires.
These people who state that paying off such a debt will help your score are either lying, or totally uneducated on how credit reporting works. You can verify my answer by asking any mortgage loan officer.
And in some cases, paying off your debt could actually HURT your score.
What you want to do is negotiate a settlement with the creditor. In exchange for paying off the debt, they must agree IN WRITING to DELETE the debt from your credit report. That is the only pay you will improve your credit scores.
They are going to tell you the can’t do it….it’s against the law or some other nonsense. I can assure you that there is no law preventing a creditor from deleting any item they placed on your report. There is nothing in the credit bureau’s user agreement preventing it either. If they won’t delete it, it’s only because they want to continue to punish you! Why would you want to pay this debt, only to have your credit to be ruined for 7 years? Makes no sense to me.
As many here have stated, once it has gone to collections, it is on your report and will not go away.
You must remember this, if the debt is not “time barred” (beyond your states statute of limitations to pursue legal action,) you could wind up in court and having your income garnished or bank accounts seized.
Although the amount owed is not extremely high, the chanes of them seeking legal action would depend upon your states gudilines.
Try and settle the debt as others have said, but only if they agree to a “pay for delete” settlement. The usual costs to collection agencies to purchase debts is as follows:
Debts that have recently been charged off: 6 to 7 cents on the dollar. Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar. Years-old, out-of-statute debts: A penny or less.
So use this as your basis for the payment offer.
Now remember this though, the Fair Debt Collection Practices Act DOES NOT apply to major credit card banks? It applies only to the collection attorneys and professional debt collection companies they might hire. Original creditors are regulated by state law; however, the major credit card companies follow policies that closely mirror those of the FDCPA and will comply with your request to stop phoning you at home and work, etc., just as if you were dealing with a collection service. If you believe you have been harassed by an original creditor, or that the original creditor has done something illegal or threatening towards you, then research your state laws on the subject and contact the proper authorities to file a formal complaint. Typically, the Attorney General in your state is the proper authority to contact.
pay it off, it will help in the long run with your credit rating. i worked for a collections company and they had settlement up to 50% they were allowed to offered, but they wont tell you that. if you take the settlement they only thing that will show on your record will be “settled in full” for this debt instead of “paid in full” and it comes off in no time.
Simple answer: the damage has already been done
The fastest way to rebuild your credit is by getting a secured credit card and letting sit in your drawer so that you ensure that you never miss a payment
Here is my favorite credit card search engine: