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Topics addressed on November 26, 2008:
Paid collection accounts not removed from credit report immediately
If I pay the bills that were sent to collection will they come off? How do you get them off? I’m trying to get a home in the next few months and my credit score is low.
You have hit on one of the most common myths about credit reports. It is widely believed that paying off a collection account will cause it to be deleted immediately from your credit report. That is not true. Paying a collection account or other bad debt will not cause it to be deleted right away.
The important thing to understand is that your credit report is a credit history. It shows how you have paid your debts over time. The account status shown on your credit report reflects the payment situation at the present time, but the account will also show how payments were made for up to seven years.
Lenders rely on the history to help them make lending decisions. If your credit report shows you have had problems managing debt in the past, there is a strong likelihood you will have problems in the future.
When you pay a collection account, the status of the account is updated to show that it is now paid. However, it will not be deleted. The collection account and the original account, along with all previous late payments will be deleted seven years from the original delinquency date.
The original delinquency date is the first date that the account became late and after which was never again current. Collection agencies are required to report the original delinquency date from the original lender. That date does not change, even when you make payments on a collection account.
Lenders need to see not only that you have taken control of your debts now. They also need to see a period of good credit management over time. That will show that you have learned to manage your credit well and that you have overcome any financial challenges you may have been going through.
A house might not be in the cards for you in the short term. I encourage you to have a longer-term plan. Focus on reducing all of your debt. Then put aside as much savings as possible before applying for a home loan
Thanks for asking.
- The "Ask Experian" team