Dec
14
Collection Conundrum
Posted by russellcorey78 under For Buyers, General Information
COLLECTION CONUNDRUM
A little known fact is that if a borrower pays off an old collection account, it updates to their credit report and becomes a recent event that is highly damaging to the credit score. For example, a collection account from the year 2001 that is paid off in November 2007 is re-scored in November 2007 as a very recent and detrimental entry to the score. So even though the account shows œpaid in full, the recentness of the œdelinquency will hurt the score more than leaving the old unpaid account alone.
Therefore, while it is best to pay off very recent collections, and sometimes essential for loan approval, strictly from a credit perspective, it is often better not to pay off an old account and let it drop off the credit report at the seven year mark.
This is why many experts feel that minor collection accounts unfairly drag down credit scores and undeservedly make people greater credit risks than they really are, particularly those who pay off such accounts in good faith.
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