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Collections

Q: Can I still get a home mortgage loan with open collections showing on my credit?
A: Yes you can

Q: How do I get these collections removed from my credit?
A: Accurate negative items reported on your credit can be reported on your credit for 7 years.

Q: How come only some collections report to my credit record?
A: Each creditor, collection agent, lender, etc... can choose to report items to your credit report or not. Some will report not report to any credit repositories, some to only 1 credit repository, some will report to 2 repositories, and some will report to all 3.

Q: Do medical collections negatively affect my credit score?
A: All collections can negatively impact your credit score.

Q: I have heard paying off collections is worse than letting them be so is it better to pay off the collections or should I just leave them alone?
A: This is a very tricky situation and should be approached on a case by case situation. While you should always pay off true debts that you owe money for, sometimes it may be better to wait until after you have obtained financing for a home and sometimes you may need to pay collections off beforehand. Please consult a mortgage professional to find out what will help you most right now and to map out a financial plan.

Q: I cant afford to pay the collections off: what can I do?
A: You can call your collection companies and see if you can get them to lower the amount owed. This is very common and is highly recommended before paying off any collection. Many collection agents will bargain with you and some may even go down to 50% of the original balance.

These questions are just a small sampling of some of the questions that are asked everyday by homeowners and people looking to buy their first home. Please contact your personal mortgage advisor today to find out more information about credit, collections and financial planning.

It is important to note that when you contact a collection agency and barter down a payoff amount that it will show on your credit report as "settled less than amount owed". If an account has just gone into collections, try contacting the original creditor and paying them directly. You may be able to negotiate fees and finance charges being "removed" and then paying the debt in its entirety. Make sure you get a letter from the creditor stating the debt has been paid in full.

Not only will your mortgage advisor have answers and resources available to answer any questions, they will also have trusted relationships to recommend for your home purchase, your credit issues and your over-all financial goals.

If you have fallen victim to collection agency harassment, the Fair Debt Collection Practices Act (FDCPA) has provisions that grant you certain rights against abusive collection tactics. Under the FDCPA, a debt collector cannot make false or threatening statements and misrepresentations about his identity, behave in an abusive or oppressive manner, contact you before 8 AM or after 9 PM, or threaten to take your home.

Remember that collections will stay on your credit report for 7 years. If you have obtained your credit report and notice that there are collections on there for more then 7 years, then you should dispute it with the three major credit bureaus. The old collections dropping ff should raise your credit score.

If you do negotiate a lower pay off than what original collection was for make sure you get a written pay off statement for the new amount. Also get verification that the payment was received and a letter stating that the debt has been satisfied. Keep this documentation filed away in a safe place. If you check your credit annually follow-up to see that the pay off of the collection was reported, if it wasn't provide the documentation to the credit reporting agencies to get the report corrected.

Not all collection accounts need to be paid off. In many cases when buying a home or refinancing, the only items that need to be paid off or addressed are those items that appear on title. This is not a conforming guideline, but nonetheless is a loop-hole around having to pay them off at the time of buying or refinancing your home.

Repairing your credit, or restoring as some like to put it, is best done by a professional company. Your mortgage broker will refer you to a reputable company that can remove items like collections from your credit file. As a general rule, if it can go on your credit, it can come off too. The 7 year rule is only the maximum amount of time a derogatory can stay on your credit file.

Most sub prime and Alt-A lenders will ignore open medical collections completely. Also most of these aggressive lenders will over look a certain dollar amount of collections that were opened in the last 12 months. And most collections older then 24 months will be ignored by most sub prime and Alt-A lenders.

Some lenders allow all collections, judgments etc to stay open, as long as your score meets the criteria. If you have re-established credit and have a score in the upper 500's, you can still qualify for 100% financing while having open, old collections. Contact us now to have a broker analyze your situation .

The new allowable limits for collections on your credit report is $5000.
If your credit report show $5000 or less you may not have to pay them off. If it is over the $5000 then all of the collections will need to be paid.
If you are receiving a non conforming/subprime loan the guidelines vary greatly and you may not have to pay any off.

It is also important to keep in mind that updating credit reports can take some time. Even if you paid all your collections today, it could still take 30-45 days before this reflected on your credit report. The most important thing is to get every interaction with your creditors in writing. If your arrangements are not in writing, they may not mean anything.

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