Winter is over. We’ve planted the flowers, washed the heaviness of winter off of the windows and dusted away the cobwebs. Now is a great time to check out any cobwebs that may be lingering on your credit report.
For example – The charged off credit card from a couple years back. Or even the late payment that you know really wasn’t late but you haven’t done anything to try to correct it yet.
What should you do about these issues and how will it affect your credit score?
The first step is to find out exactly what is on your credit report. Go to www.annualcreditreport.com and order copies of your report from each of the three bureaus. From this site you should have immediate access to each of your reports. This is the only site where you can get a free credit report once a year. Carefully go over all the information on each report. It is important to look at all three as each may have somewhat different information. Just because you have a late payment reporting to one bureau does not mean it is reporting to all three.
Should you pay off that collection account? If you do what will that do to your credit score? Of course, it feels like the right thing to do but it may not be the smart thing to do, especially if it hasn’t reported for a while. If a collection account hasn’t reported for several years, paying it off could actually have a negative effect on your credit score. When you pay off a collection account it brings the reporting date current on your credit report, which brings the derogatory information to a more recent date which can hurt your score. If you are getting ready to purchase or refinance and the underwriter is insisting it be paid before you close, see if you can pay it off at closing. When you are negotiating with the collection agency regarding payoff also try to negotiate if they will remove it completely once it is paid. Although they don’t have to, it never hurts to ask.
What about a charged off account? What exactly does that mean? A charged off account is a debt that the creditor feels they will never be able to collect so they charge off the debt. They haven’t forgiven the debt – it is basically still owing. They just don’t feel they will be able to collect on it. Once they charge it off they may turn it over to a collection agency. Paying it off can have the same affect as paying off a collection account. There is one exception to this. If it is a revolving debt that was charged off and it is reporting currently, i.e. 05/08 then it could actually help your credit score to pay it off. However, if it has an older reporting date – over 12 months ago – there is a chance it will, at the onset, hurt your score.
In the long run paying off these debts is good as the longer they show as paid off the better off you will be over time. If the debts are very old you might want to consider letting them fall off on their own, paid or unpaid. All collections and charged off accounts should fall off of your credit report by themselves 7 years after they originally went into a collection or charge off status. If you have something like this on your credit report that is over 7 years old you should dispute it with the bureaus.
What about a late payment? If you have late payments that are 4 or 5 years old they really aren’t having a huge impact on your score. Its the late payments that have occurred in the last 24 months that are the ones to pay attention to. If you have a creditor you have a good standing relationship with and they are showing one or two recent late payments you should call and ask them if they will do a “one time courtesy removal”. Again, they do not have to but it doesn’t hurt to ask. If it is only one or two they may agree to this because they want to keep your business.
In all of these situations when you call the creditor always ask to talk to a manager and, as silly as it may sound, call on a Friday. People are always much happier on Fridays and in our experience when a person does call on a Friday they have about a 75% change of getting what they want as opposed to calling on a Monday.
Start summer off right. We’ve opened the windows and let the sunshine into our homes, let’s let some sunshine onto our credit reports too. Have a safe and wonderful summer!