Why paying off collections wont help your credit scores

1. 3 Reasons Paying off
Collections will Severely Damage
your Credit Scores
By Lenders Choice Credit Solutions

2. • Many consumers believe that paying off
collections is the best way to improve credit
• In reality, paying off collections will almost
always HURT your credit scores

3. • Today we will focus on
exactly what happens to
your credit when a
collection is paid off
• At the end of this webinar
you will know all the facts
and insider secrets that
collection companies don’t
want you to know

4. Reason 1: Paying off a collection
updates your SOL
• Every account you owe money on
has a Statue of Limitations SOL
• This SOL determines how long by law
a creditor can collect on that debt.

5. • The SOL varies based on the state you live in or
the state you acquired the debt
• Each state has different time frames that
collectors can attempt by law to collect on that
debt

6. • Your SOL will also vary based on
the account type
• Mortgages, judgments, and tax
liens are a few accounts which
have longer times where the debt
can be collected on
• Credit cards and other installment
loans usually have shorter times
that collectors can collect

7. • Many states have a Statue of
Limitations of 4 years on credit card
and contract debt.
• This means the collector can only
collect for 4 years beyond the Date
of Last Activity of that account
• Mortgages in many states have a
SOL of 7 years where the bank can
pursues you to collect on that debt

8. • When a payment is made on a collection
account the Date of Last Activity is updated to
the date the payment was made

9. • For example, let’s say you had a
CHASE credit card that went
into collections 3 years ago
• If the SOL was 4 years, that
would mean you can only be
pursued for 1 more year on
that account
• But when you make a payment,
you update the Date of Last
Activity on that account
extending the SOL

10. • If you make a partial or full payment to that
collection company today, you reset the SOL to
today when you made that payment
• They would have only been able to pursue you for 1
more year if you didn’t make a payment.

11. • But now that a payment was just made, you just
reset the SOL and now the collector has 4 MORE
years to collect starting from the day you made
the payment

12. • When you pay off a collection you extend the
Statue of Limitations on how long that collector to
collect.
• This is one great reason you do not want to pay off
a collection

13. Reason 2: Paying off a collection does not change
the account “status”

14. • If you have an account in good standing it reports
as a “1” status
• For example, a paid as agreed Mortgage reports as
a M1 status, and a paid as agreed Revolving
account reports as a R1 status

15. • When late payments occur, that “1” status changes
based on how late the account is being paid
• The first late payment changes the status to “2” and
as the account becomes further behind the
numbers increase until the account ends up in a
collection as a “9” status
• All collections report as a “9” status and severely
damage your credit scores.

16. • Your credit scores are a mathematical model
designed to depict your risk of going 90 days late
on an account in the future

17. • When you have collections and “9” status
accounts your risk is high and your scores are
lower as a result
• When you pay off a collection, the account still
remains a “9” status
• It is still looked at as a defaulted account, and you
still are just as high of a risk for defaulting in the
future

18. • The truth is, your scores will not
go up when a collection is paid
because the collection “9”
status still remains and it is still
looked at as a defaulted account
• Paying off a collection will NOT
raise your scores for this reason

19. Reason 3: Paying off a collection will
update your Date Reported
• Every account on your credit report has a
particular time it can be reported for

20. • The times these accounts can report
varies based on account types
• Most negative accounts remain on your
report for 7 years. Tax liens,
bankruptcies, and other government
accounts can remain on the credit for 10
years
• Other IRS type debts can remain on the
report indefinitely

21. • The time starts from the date you went late, NOT
your date of last payment like the Statue of
Limitations
• Many creditors will update this date when a
collection is paid off, even though they are not
supposed to by law

22. • But if you are in a re-payment plan for a debt, and
miss a payment, they can legally update this date
on your reports

23. • For example you have a Capital One credit card
which you started going late on 4 years ago
• The account is due to drop off in 7 years, so since it
is 4 years old already it will drop off in 3 more
years
• But in many cases when you make a payment on
this debt the collector updates this date to the
date you make the payment

24. • That means that account will now report on your
credit much LONGER than it should. It was due to
drop off in 3 years based on the prior example,
but now that clock is reset and will remain for
another 7 years.

25. • Paying off collections in many cases updates
your account so collectors can keep the
negative item on your credit report much
longer than it should be

26. • When you pay off a collection many items on
your report are updated. Ads you know now,
most of them are not good and will severely
hurt your credit score

27. • The only good thing that
happens is the balance is
reported as $0 if it is paid off
• Your scores benefit a little based
on now having a $0 balance
instead of an outstanding
balance.

28. • But having a $0 balance does not outweigh having
the Date of Last Activity updated, so your credit
scores mostly will go down as the bureaus see it as
a recent collection and still a “9” collection status
• This means your risk is still high, and your scores
stay low

29. • The only way to improve credit is to DELETE the
negative item
• When the item is deleted, all the history is wiped
out and the “9” status collection is gone for good

30. • If you do want to pay off a collection, make sure
you obtain a Pay to Delete letter to have the item
removed completely.
• Otherwise, dispute and delete your negative items

31. • But don’t pay off collections or you WILL hurt your
scores due to these 3 reasons on how that paid off
collection affects your credit scores

32. Get started today so you can have
the excellent credit you deserve!
Call us today!
214-307-4946