As Shakespeare almost put it, To Pay Or Not To Pay, that is the question:
When it comes to your credit scores, paying the right account or the wrong account can make a massive difference in your credit scores. Today let’s focus on what not to pay. One would assume when paying off bad debts on your credit report, the credit scores would always increase. However “one” is not always correct. Paying off items like your utility collection, or your cell phone collection will most likely decrease your scores. This is despite the popular belief that having a $0 balance on your collection accounts must be better than owing money. Balances on collections are irrelevant, for example you could have a one million dollar medical collection or a one dollar medical collection and if everything else is the same the scores would also be the same. The reason why your scores generally decrease when a payment is made is because by making a payment you reactivate the account causing it to report as new again. This is shown as the DLA on a credit report. This DLA or Date of Last Activity represents the weight of the account AND the seven year statute until the item will fall off naturally (which is a whole other problem, but we will save that for another day).
The reasoning behind this madness is that the algorithms that calculate scores cannot discriminate against wealthier/poorer individuals. So the fact that a wealthier person has the ability to pay off a certain dollar amount more easily than a poorer person would be discriminatory on algorithm calculation.
So what are you to do with these pesky collections? The good news is you have an outstanding credit restoration firm at your back and that would like nothing more than to assist. Please contact Fernanda Leon or Bryan Shobe @ RealEstateCreditProfessionals.com and they can help you get pointed in the right direction with their direct portal to our services.
Regional Director and Manager