Via our FREE Financial Literacy seminars and our partners, we educate members of the community on strategies to improving their credit score in preparation for the biggest purchase one can make…. buying a home!
One question we get asked a lot is whether they should pay off their collections. You have the option to pay off your collection or settle the debt for a lesser amount with the lender but there is one step before handing over your debit card. In order to truly impact your credit score, the creditor needs to REMOVE or DELETE the collection from your credit report. If you pay in full or settle, the negative activity still remains on your credit report. You need to request IN WRITING that your creditor delete the collection from your report. Do not issue a pay in full or settlement amount until you receive a response IN WRITING that they have agreed to or rejected your request.
After 7 years, the collection item is no longer visible but if you are planning to purchase a home or a car within 6 years… it may be worth it to have those negative items removed from your record.
I strongly recommend people monitor their credit report monthly. CreditKarma is FREE and sends you alerts when there are changes to your report. Although it does not utilize the FICO score which is utilized by the credit bureaus, it helps you MONITOR your financial report card so to speak. You want to know if you are on track or what items to address because they are setting you back.
For more strategies to help you get on track to purchase a home in 1-2 years, please contact us for a free no obligation consultation.