When you have recent collections, ‘pay for delete’ is best bet

By Barry Paperno

Dear Speaking of Credit,
I’m trying to buy a house but my score is to low but I only need another 40 points to qualify for a FHA loan. That being said I have 3 accounts is collections that I plan on paying off next week. The most recent is June 2016 and the other 2 are 2013 and 2011. Unfortunately I don’t have any cc but I do have 2 car payments.

One collection agency has already said they’d delete upon payment, but I haven’t heard back from the other 2. If I can get all 3 deleted from my record what will that do to my score? Thank you. –Sylvia

Dear Sylvia,
Any impact to your score from deleting those collections will mostly be determined by the dates those collections were assigned to the collection agencies.

In trying to get the collections deleted, something to be aware of is that it doesn’t matter to your score how many collections there are. For collections, only the item with the most recent assign/open date will be impacting your score to any serious degree.

For this reason, getting the most recently assigned collection off of your credit reports should give you the most bang for your scoring buck. And unfortunately, most of the score models in use by lenders currently don’t give you any more points for having paid a collection, as long it remains on your credit report.

It will be all-important then to get that 2016 collection, as well as the other two, removed if at all possible. And there are never any guarantees a collection agency will remove a paid collection, so don’t be discouraged if it just isn’t possible. Unfortunately, even having the older two deleted won’t help your score in the short run as long as that recent one is still on there.

However, if you’re successful, there’s a good chance of quickly recouping those 40 points. So you’ve got a fine incentive to make a deal with those collection agencies!

If you’re not able to get all 3 collections removed by paying them you may have to work at raising your score some other way, though any other such score improvement isn’t likely to be as quick as having all three collections are gone entirely.

If, when all is said and done, you find yourself stuck with any of the collections for their approximately 7-year term, one way to help your score then might be to add at least one credit card with very low utilization — below 10 percent is best.  The score likes to see at least one open card account, so that’s one opportunity you have to gain some points — if not immediately, over the next year or so.

To add a credit card, you can either be named as an authorized user by a spouse, significant other, relative, or friend on their existing card, or apply for a secured credit card. Those collections are probably keeping your score from qualifying you for an unsecured card.

A couple of good things about being an authorized user — when compared to opening a new card of your own — is that 1) there’s no hard inquiry, and 2) you are likely to immediately inherit the entire history of the account (though maybe not at Discover). Or a secured card with low utilization will do everything for your score an unsecured card can.

Again, neither is a quick fix, but faster than just letting the passage of time do its thing.

Very importantly, if you’re trying to raise your score, leave your car loan balances alone, other than making the payments each month. Their balances are not hurting your credit score in any way you need to be concerned with.

I hope I’ve given you something to work with. Good luck!

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