Improving Your Credit Paying a collection account or lien can actually reduce your credit score, heres why: The credit scoring software looks at the date of last activity on the credit report to determine what effect it will have on the credit score. Collection agencies will update your credit report to say Paid Collection or Paid lien whenever you pay a collection. This will in turn make the date of last activity current and the credit scoring software sees it as recent collection activity and lowers your score as a result. This is a flaw in the scoring software that is unfair but it is something you have to work around when trying to maximize your score. The best way to handle this problem is to contact the collection agency and tell them that you are willing to pay but you want a letter from them stating that they will delete the account if you pay it. Some collection agencies will do this, some will not, but getting the account completely deleted will increase your score and is definitely worth the effort. Past Dues destroy a credit score. If you look on your delinquent accounts showing on your credit report you will see a column called PAST DUE. If you see an amount in this column I suggest paying the creditor the amount that shows. Credit scoring software penalizes you for having accounts with an amount in the past due column. Paying a charge-off or a lien wont help or hurt unless it occurred within the past 24 months. Charge offs and Liens do severely effect the credit score, but after the charge off or lien is more than two years old paying it will not effect the score dramatically. If you have limited funds available I suggest using it to pay past due balances first, then pay collection agencies that agree to delete if you pay them. Below is a way of interpreting your credit score. Given the current credit score stats, how does this relate to your own personal score? Generally, if your score is higher than 660, you will be considered a good credit risk. If your score is below 620, then you might have a tougher time getting a loan. The following ratings explain the impact of the different score ranges: 720-850 - Excellent - This represents the best score range and best financing terms. 700-719 - Very Good - Qualifies a person for favorable financing. 675-699 - Average - A score in this range will usually qualify for most loans. 620-674 - Sub-prime - May still qualify, but will pay higher interest. 560-619 - Risky - Will have trouble obtaining a loan. 500-559 - Very Risky - Need to work on improving your rating.
Posted on: Sun, 19 Jan 2014 01:06:00 +0000
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