Paying Off An Old Collection Account
For those folks who are looking for a purchase mortgage loan or a refinance mortgage loan, they must realize that paying off an old collection account can drop your credit scores. Paying off an old open collection account can drop a person’s credit score by 40 points or more, instantly disqualifying a mortgage loan borrower from qualifying for a mortgage loan.
Old Collection Accounts
Many folks who want to purchase a new home usually check their own credit report and credit scores before they even consult with a mortgage broker. When they pull their credit report, they realize that their scores are not bad but see some derogatories that has been aged. Then they take the initiative by paying off the old collection accounts thinking that by paying them off their credit scores will increase but that is definitely not the case.
Paying Off An Old Collection Account Re-actives The Date Of Last Activity
If a mortgage loan borrower, for example, has a credit score of 610 FICO and needs to get to a 620 FICO credit score so he or she will get better rates and terms and goes ahead and pays off old collection accounts, I can guarantee that the borrower credit score will drop well below 600 FICO, which will make matters worse.
Old Collection Accounts Have Little To No Impact On Credit Scores
Common sense dictates that by paying off collection accounts should improve your credit scores. However, the credit score computer has a brain of its own in calculating a person’s credit score. You see, a derogatory item on your credit score has less and less impact on your credit score as time goes by. Old collection accounts that are over 2 years old will have very little or no impact on your credit scores. Paying off an old collection account can drop your credit scores? Paying off an old collection account can drop your credit scores? Let me restate that: Not will paying off an old collection account can drop your credit scores but you can bank that it WILL drop your credit scores. What happens is that the delinquent collection account that had no impact on your credit scores will suddenly get revived and will now have an impact on your credit scores.
You Can Still Qualify For Home Loan With Unpaid Collection Accounts
You can still get a mortgage loan with open collection accounts by many mortgage lenders. If the mortgage lender requires you to pay off a particular open collection account, you can pay off the collection at closing.
I strongly recommend that you seek the consultation of a mortgage broker immediately before you plan on improving your credit scores. Mortgage brokers/bankers do not charge anything for a consultation and the only way they get paid is once they close on your mortgage loan.