Here is a question I've been asked many times over the years in regards to collections:
"Several years ago I had a collection on my credit report. I'm trying to get a mortgage loan and now the Underwriter wants it paid. Why?"
One of the things an Underwriter does is look at your willingness to repay your debts. If you owe a creditor money and have not paid the bill- the Underwriter will question your ability to pay the mortgage debt. Open collections and charge-offs on your credit report can hinder the loan approval. These will stay on your credit report for 7 years, although some collection agencies may "re-report" the item so that it stays on even longer. Depending on the dollar amount of collection or charge-off, the Underwriter will want proof it has been paid. Sometimes, they will allow the item(s) to be paid at closing.
A general rule of thumb: if the individual collection or charge-off is more than $250.00 or the aggregate (more than one) is over $1000.00- then you will have to come up with the proof it was paid or pay it at closing. Whenever you pay off a collection or charge-off, make sure you get the proof in writing! Collection agencies and creditors do not always report the item as being paid to all the credit bureaus. As an FYI- paying off a collection or charge-off will not remove the item from your credit report.
Each credit bureau keeps a "file" of your credit history. What is in that file can vary from agency to agency. It is your responsibility to make sure each one has the same information and that it is accurate. Check your credit report annually from each bureau and compare them side by side. You can order a free credit report from each bureau once a year at: AnnualCreditReport.com
If there are errors or discrepancies, it is up to you to correct them. Contact the bureau directly for instructions to update, correct or dispute items that are showing on your report. Here is the contact information for the three major bureaus:
Equifax 800-685-1111 Equifax
Experian 888-397-3742 Experian
Transunion 800-916-8800 Transunion
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