By Barry Paperno
Dear Speaking of Credit,
I am 26 years old and have just recently been given the opportunity to build my credit within the past year. When I checked my credit report for the first time I saw a bill in collections from 5 years ago. I immediately paid it and because of its age it didn’t seem that it was hurting my score too badly, but recently a medical bill I had been paying on (but not fast enough I guess) went into collections and hit my report. That one caused my score to drop 80 points. Regardless, I paid all of it off.
A little more about my credit background, I have 2 Capital One cards with $3500 limits & an AmEx with a $3500 limit & I am trying to move closer to starting the home buying process.
I also never carry a balance on my cards. I like to keep my utilization below 8% so I make several monthly payments if need be. I really just use them for very very small purchases. I did use my Capital One Quicksilver to pay the 900ish dollar medical bill in collections, so now I will carry a balance for the first time on that one card, but I used that particular card because I have 0% interest until September of this year & I plan to have it paid off well before then & also 900 dollars would still keep me at a somewhat low utilization percent.
I accessed all 3 of my credit reports & scores using AnnualCreditReport.com & my scores with the 3 of them were all different, but not by much, between 690 & 718. It was after I checked those that the medical bill went into collections. I use several different things to monitor my credit score, from CreditKarma.com to CreditSeasame.com, but it was my account with Experian that told me my score dropped from 718 to the 630 area because of the hospital bill. I also pay for ongoing access to my scores & report with CreditReport.com & it has me scored at a 643 right now. The last way I monitor my score is Capital One’s credit tracker, a free service they offer for card holders & they have me at 708. That’s a wide range of scores, but I assume the more accurate score is the lower one just because of the delinquencies I know I have even though I’ve paid them.
My question is how long until my score starts to rise again? What can I do to raise it? I’ve paid my collection debts, is there anything else I can do? — Emma
Good for you, paying off those cards each month! And paying off that $900 by September will be a big plus toward rebuilding your credit scores.
To begin to answer your question of how long until your scores begin to improve, first, I would suggest pulling some actual FICO scores at myFICO.com and ordering the following score versions, if possible, since they’re the ones mortgage lenders use and are thus the only scores that will matter:
- Equifax FICO Score 5 (aka BEACON 5.0)
- Experian FICO Score 2 (aka Experian/FICO Risk Model v2)
The TransUnion score used by mortgage lenders (TransUnion FICO Risk Score Classic 04, aka TU-04) won’t be available at myFICO until later in the year, but the Equifax and Experian should tell you all you’ll need to know.
If the “real” FICO scores are anywhere close to the ones you’ve seen, I would expect them back into the 700s within about 12-18 months and to the mid 700s within two years. This assumes you pay off that $900 as planned, aren’t late on anything, and don’t open any new accounts anytime soon. Also, now that you’ve seen them and have a rough idea of where you stand with the various “educational” scores, avoid those non-FICO scores entirely as they’re essentially worthless when preparing to apply for a mortgage. Unfortunately, FICO scores tend to be more costly than the others, but you only need to see one bureau’s FICO score every 3-6 months to stay on the rebuilding track.
If you want to try speeding up the process of raising your scores and if you haven’t already attempted it, you might try contacting the doctor’s office that sent your bill to collections, speak with the office manager or even the doctor, and ask them to instruct the collection agency to remove the collection from your credit reports. Since you were making payments that were being accepted prior to them sending it to collections, you were under the impression that doing so was acceptable. Then, once you became aware of the collection account you paid it in full right away. Finally, state that there is some urgency, as you will be buying a home soon and this collection is likely to present a problem even though paid. If you haven’t already tried this, it’s definitely worth a shot and the payoff in terms of your credit rating could be tremendous.
Unfortunately, since you have already paid those collections, you don’t have much leverage with the collection agency in terms of getting them to remove the collection from your credit reports, which would help your scores much more than paying them. That’s because collection agencies, more than anything, want your money and once you’ve paid them they have no incentive to go the extra mile for you. Still, though, it’s much better to have paid collections on your reports than unpaid collections.
Had you not paid the collections yet, I would have suggested contacting the agencies (always by mail if you haven’t paid them) and offering a “pay for delete” (PFD). This is where, in exchange for you paying the bill, an agency agrees to remove the collection from your credit reports as soon as they receive your payment. Though being under no obligation to agree to your offer, collection agencies often comply, preferring to be paid now without having to contact you again – or possibly having to sue you – versus incurring additional expenses by continuing to pursue you to some degree.
You can still ask them to remove the collections after you’ve paid them, however, though it’s not nearly as likely they’ll agree now that they have your money. This is why, having already paid it, I’m suggesting you contact the doctor’s office, basically, since they have an incentive to keep you as a patient and the collection agency has an incentive to keep the doctor’s office as a client.
Thanks for writing and keep up the good work!