Well that depends on you. Yes you. If you have a debt in collections and you’ve decided to pay it off because someone advised you to do so- perhaps a mortgage lender, then you’d be surprised to know that that may be a very bad idea.
If an account has been placed on your credit reports that is negative such as a charge off, collection account or repossession, simply paying the balance will NOT improve your credit. Here’s why.
A bad account status like a charge off, collection account, repo, foreclosure etc is considered negative and as bad as it gets. The rating is commonly referred to as an R-9. To put this in perspective, an R-1 is a perfect credit rating. An R-9 is negative and unfortunately if you pay an R-9, its still an R-9. Its simply paid now, which has released you from financial liability but your credit reports are still left in ruin.
The best route to take is to NEGOTIATE THE RATING IN EXCHANGE FOR THE PAYOFF. It’s done everyday- believe it or not. Sure an original creditor may not agree to these terms but a third party debt collector will. Most negative accounts past 180 days delinquent are sent to third party debt collectors. Once that process happens, you are in a better position as far as negotiations of the credit rating go.
A third party debt collector will often settle the account and delete the credit rating because all they are concerned with is getting paid. An original creditor will not approach a debt this way, but a bill collector will.
By getting the debt collector to agree to settle the debt for this exchange, you will gain something from the payoff as well. Keep in mind there are a few instances where you will want to pay the debt off even if the collector refuses to improve your credit rating.
For example, a collector has absolutely refused to remove the rating, you’ve received validation that the debt is accurate and you need this account to show paid because either you are being forced to by a lender before they issue you a loan, or you want the collection agencies to leave you alone and are worried about being sued. This is when you need to pay the debt if negotiations have fallen through.
When dealing with a collection item you must always attempt to negotiate the rating before you pay a dime. Not doing so is a very bad financial move because chances are, you will get your way. Can you imagine having an item completely wiped away from your credit reports from just a little effort? It’s definitely worth your time.
Related to this story} Validating a debt, how to | Dealing with collection agencies | Sending a cease and desist letter to stop collection harassment.
Article written by credit expert, Kristi Feathers. Kristi can be contacted via her website at www. KristiFeathers.com
