Collections
Most large collections, other than medical will have
to be paid prior to closing on a home loan. However,
here are a few tips for dealing with a collection.
You can start doing this on your own and once you
get into our program we will help you as well.
1. ALWAYS consult your mortgage representative
before paying off any collections. Some collections
may be old enough and no activity has been noted on
your credit report that leaving it alone may be in
your best interest. This is on a case by case and
there is no hard and fast rule. As long as a
collection is continually being reported on your
credit report you really need it taken care of
before you will get a home mortgage.
2. Do not pay the current Collection Agency-
find the original creditor and contact them for a
final payment amount. If you are not sure who the
original debt was with you can go to the back pages
of your credit report for the creditors name and
contact information. The only type of creditor that
will not be clear is for medical collections, they
are often just reported as medical nonpayment, but
hopefully you would recall who that was with for
making payment arrangements.
3. Before you pay a collection ALWAYS ask if
they will settle with you- as long as you pay in
full today. You always want to bargain prior to
paying, that is all you have to work with, once you
have paid they have no incentive. You also need to
ask them if you pay in full today will they remove
the debt from your credit completely. Again, this is
if you pay today will they setting for a smaller
amount and remove it from your credit.
4. Before making a final payment- asks for a
letter documenting your conversation, and the amount
that they have agreed to settle for. You need to
make sure the letter has their letter head, date,
amount settled for and if they will remove it from
your credit entirely. It must say "this debt was
erroneous and will be removed from this person's
credit”.
5. Do Not Pay In Cash: Make a copy of the check
or money order you pay with, and get a receipt from
the creditor once you have paid. Make sure that the
receipt clearly states the account number, the
account balance and that the debt will be removed
from your credit.
An example of this would be if you had a bill from
your cell phone service called Fast Phone and
say the bill was for $150. Then over a period of
time they sold it to a collection company and now
you have a collection from ABD collections for $250
with all the fees. You need to call the original
creditor which would be Fast Phone and do #2-4. You
do NOT pay in cash, always a traceable method like
check, certified check or money order (be sure you
make a copy of it before you give it to them). And
then have them hand you a letter that the account is
closed and paid in full and will be removed from
your credit.
6. Do Not Lose These Documents. Collection
agencies are notorious for taking payment from you,
then putting the debt back on your credit 60 days
later. You always want to have documents to prove
that you paid it and it was to be removed, and then
you can go directly to the credit bureaus yourself
if needed.
7. Send a copy of the letters, copy of the check
and a letter-to all 3 credit bureaus with an
explanation that this collection has been satisfied
and here is the proof. You need to include proof of
your identity as well so it is taken off the correct
person's credit report. Allow 30-60 days for the
credit bureaus to get back with you- typically by
letter. Do not try to rush them; this is the time
frame they have to work with.
8. In the future, if you are falling behind on a
payment- Call the creditor before it goes to
collection. A lot of times they will work with you
and make payment arrangements. It certainly can't
hurt.
