1) He has not made payments on his previous promises. He still owes others money that he doesn't seem able to, or interested in, paying. He expects to pay me with his future wages. Other creditors want to get repaid, and will have a right to an amount that will continue to grow with fees and interest charges, so his past due balances are actually higher than he's telling me. I can require he pay off those old debts, but if he uses my money to pay those off, do I really want to be in the shoes of those he isn't paying now?
2) He seems to have had a tough period and missed payment obligations for some reason, (but that was XX ago / there is an explanation in credit file). Gotta' say s/he really wanted to stay responsible/honorable and worked through it, made good on his promise overall and paid them. He doesn't seem to owe others now, at least not more than he seems able to pay on what he's making....
UPDATE: In 2007, Fair Isaac agreed with debt collectors that a debtor should not be penalized for paying off old debt accounts. While it is true that renewed account activity could reset the date of last activity on a collection account, it does not change the date of last activity for the original debt. Furthermore, Fair Isaac claims that adjustments have been made in credit scoring that allow for a debtor to pay an old debt without any negative movement in their credit scores.
This settles a decades old argument that paying off an old liability demonstrates financial responsibility. What we do not know is whether the actual change to risk scoring models was made in 2007, or if it is part of the FICO 08 scoring update. Either way, by late 2008 debtors will not be penalized for paying off an old debt account. With this in mind debtors can pay off older accounts without fear of a negative credit score reaction. This is true for lump sum payoffs. Making a series of payments on an old debt is still not advisable. Still though, debtors should focus on newer debts, since older accounts may drop off their credit report before they get a chance to repay them.
Paying off a collection will update the account as more recent which will hurt your credit score, but it will also improve your debt to limit ratio which will increase your credit score. More importantly you can negotiate to remove the credit report listing upon final payment. You can also try to dispute the collection with the credit bureau and this becomes much easier once you have paid off the debt.
It is completely and utterly untrue that writing "this pays this debt in full" on a check is legally binding. Why wouldn't one do that on the first mortgage payment? I can write anything in the memo of a check, it means nothing. Please do not follow that advice. I worked for a bank for over a decade, this is a horrible myth.
"Should" is a misnomer in the context of this question. Some background information may clarify the issue.
All defaulted debts are due and payable in full immediately. If you have made payment arrangements, those arrangements are at the discretion of the creditor/collection agency. They are under no obligation to accept anything less than the full amount owed.
Creditors incur expenses to have data reported to the credit bureaus. It costs them to place a collection account on the bureau and costs them to update the balance. It is typical for them to update to a zero balance, but not unheard of for them not to update at all. This is an issue that consumer's should address when "making arrangements" and follow up on in their own credit reports.
So, while your collection may show payments being made, this would be unusual. It also would not benefit you at all. Not only would this signify that you defaulted on the original account, but that your attempts to pay later were not according to standard and ordinary terms either.
Instead of shooting for this goal, try instead to make certain the account gets updated to a zero balance once it does get paid off. Better yet, request that the account be deleted from your report upon payment. This may not happen, but is well worth requesting.
Negative information remains on a CR for the required amount of time, in most cases that would be 7 years.
When a debt is paid in full it will not be removed from the CR until the time limit has expired but it should be marked as "paid or satisfied".
Yes, if you have a bad debt reported to your credit listing and unpaid balance this hurts both your credit rating along with your balance between debt-to-income if you had been considering purchasing or refinancing a home. When you payoff this debt, the balance is changed to reflect that you have made this payment, which will improve your credit standing.
It will, as long as the collection's date of last activity is within the last 6 months. Paying a collection resets the date of last activity and may wind up hurting your credit score.
It is better to have an old collection with a balance than a new collection without a balance.
Not always. Paying a collection refreshes the date of last activity. The FICO algorithm considers the last 6 months of activity to be the most important which means that it has the most impact on a credit score. Paying an old collection puts that collection back within that 6 month period and lowers your credit score on many occasions.
The rule of thumb is Pay collections which are active within the last 6 months and do not pay collections which have been inactive for over 2 years. Use your best judgement for everything in between.
Answer
Paying of your debt in collection will hurt your credit score as it will show that your payment is not of the required amount and not in time.
No, actually a paid collection is just as bad as an unpaid collection, they both are negative information reporting to your reports
Yes its a very good thing to do!
Yes
Acceleration in the collection of receivables will tend to cause the accounts receivable turnover to increase. Many companies use collection agencies to help them with this process.
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Paying off your installment loans (mortgage, auto, student, etc.) can help your scores but typically not as dramatically as paying down -- or paying off -- revolving accounts such as credit cards.
Yes, payment history accounts for 35% of your credit score. So paying your bills on time will help you maintain a good credit rating.
Just because an account is charge-off does NOT mean the debt is not being collected upon or that the debt is expunged. Charge-off accounts are often sold to collectin agencies or junk debt buyers who will subsequently try to collect on it. Paying a charged-off debt will not help your credit scores. A status of 'paid charge-off' or 'paid collection' is still a negative. A mortgage lender may look more favorably upon accounts like these, but paying won't remove the tradelines or increase your scores.
Paying off collection or charge offs is NOT SUPPOSED TO reset the DLA (date of last activity). This is the date that determines how long a derogatory account can show on your credit report. You would need to find out the DLA on your specific accounts and follow up after payment to ensure that they are not re-aged. This would be illegal. Better yet, why not offer to pay for removal from your credit report completely?
A credit score of 450 is poor. You have far more poor credit than one collection. You should pay off your collection and make every effort to bring current the other accounts that are passed due. An average credit score would be in the neighborhood of 625. You have a long way to go.
help paying credit cards
Yes. Amounts owed accounts for about 30% of your credit score. Ideally your utilization rate should be 20% or less. Paying your credit card balance to 20% or less will improve your credit score.
Collection jobs involve recovering payments on overdue bills. The job entails negotiating repayment plans with debtors and help them find a solution to paying their overdue bills. US collection jobs can be found through Indeed, Monster or looking through a local newspaper.
No, not unless you pay the full required payments without default, which is the same as paying for the card normally. Once you default on a payment your credit rating starts to drop.
Paying off collection accounts in no way improves your credit and may, under certain circumstances, HARM it by lowering your scores. Once an account goes into default, it is a derogatory mark against your credit. The derogatory nature, PLUS the "date last reported" combine to cause deductions to the score, even if the account has been paid off. If the date last reported falls within the past 12 months, the deduction can be huge. In the simpliest terms, a credit report is a history of how you have managed debt in the past. So, obviously, the recent past (last 12 months) has the most impact on your scores. Any derogatory mark falling within that time frame is a "score killer". This is the reason that paying off old collection accounts don't help your credit. They often cause the account to (confusingly) appear to be more recent. The only true way to improve your credit is to pay a collection account in exchange for its' REMOVAL from your credit. Unfortunately, this is not easily accomplished. However it is still worth the effort because that is the only way to actually improve your credit by paying defaulted debts.