I have searched on this forum and a few others, and the information I am finding is all over the spectrum. It is probably because lenders have different requirements, but let me see who might be able to give me some direction. I am in the process of cleaning things up. I want to get a mortgage in a year, and I need to figure out the charge-off vs. collection debate. I have 5 charge-offs from 2007. ALL are already past the SOL for where I live, NC. All five of these are marked with a $0 balance and all indicate the debt was transferred or sold. In addition, there are no corresponding collection accounts for these on my credit report. As far as size of each collection - 4 of them are under $700 and one is a larger one of $4000. Over the years I have paid for a few in return for deletion, but there are 2 (including the 4K one) that I have never paid. The CA could never get past the 30-day validation, so they never made it on my reports. So, the question is how will most mortgage lenders look at this? I will try hard the next year to get these removed from my reports, but I sure would hate to pay the darn things with only 2 years left before they fall off the report. Will the mortgage lender look and see that the charge-offs were sold and are $0 balance and be okay with that, or will they actually need to call the OC and get the CA and then verify it has been paid? Thanks for all your help!
I don't know an exact answer. Now, I did notice one thing. CAs don't have a 30-day period to ANSWER a validation request; they just can not resume collection activity until after they've obtained and mailed the validation requested by the consumer. That said, even if all of the CAs would now get the validation and provide it, and begin reporting, they'd still only have the 2 years that it could be reported. COs, even PAID COs are 'bad', just like PAID COLLECTIONS are just as 'bad' as COLLECTIONS. Whether they would take the time to do the due diligence to play follow the chain of custody from the OC, to CA1, to CA2 to CAn... for each and every account to find out the current status of each account would be their individual decision. Keep in mind that for every CA you know about, it probably got hot-potatoed a few times, minimally. I had one account that had 4 DIFFERENT CAs in less than a week, 1 of whom contacted me, another of which put a tradeline on my credit report, but there were 2 other CAs that I had to go through to find out which of the 4 were the actual CA of record for the account, because they made the chain of custody murky.
I would say your best bet is to not 'refresh' the debts by making payments on them. I would also suggest that you be proactive in the lending process. Now that they've tightened down restrictions on lending, it's back to the old days of being scrutinized by the mortgage companies. Were there any special circumstances (such as the economic downturn - job loss, illness, etc) that contributed to the accounts going into collection? If so, you might include a letter addressing each known CA line on your report, what happened at that point, and why it's not likely to happen again. If you let the loan officer in on what's going on, s/he'll have more preparation going into underwriting and will likely be able to serve you better in terms of telling you what to expect. Good luck, Mys
I agree with Mys, I would not "refresh" those unpaid collections by paying them off now. Discuss your situation with a mortgage broker and I am sure there are different loan options out there you will qualify for with the collections. Ask about getting a automated approval. Those seem to be more forgiving depending on the loan program. Thanks! Heather with BoostMyScore.NET
The underwriter will most likely ask you to provide explanations regarding the charge-offs, but they'll basically rely on the information found in your credit reports. If the charge-offs look as though they've been paid, and you have no corresponding collection accounts, that will of course look much better than if you have a bunch of "unpaid" charge-offs and collections on your credit reports. How good are your FICO scores now?
Joshua, thanks for the information. My scores are all around 610 right now, but I have 13 medical collection accounts that will all drop off the next 30-60 days. Those 13 accounts totaled about $1800, and I got PFD on all of them. The question I have is "how does a charge-off" look paid? The 4 charge-offs all have $0 balances and are all marked as transferred/sold. The ones I have paid, don't look any different than the 2 I haven't paid. Also, there are no corresponding collection accounts for any of the 4.
A CO looks "PAID" if it has a ZERO BALANCE or the notation PAID CHARGE OFF. It has pretty much the same score effects, but an underwriter will probably look at it more favorably, manually.
