Speaking of Credit

Raise credit score 30 points in 6 months? Tough, but doable


Attention to bill-paying, credit utilization — plus enough cash to whittle down debt — can get it done

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Dear Speaking of Credit,
I am looking to buy a home within the next half year. But, I have an open collection account ($3,420) on my report, from a debt for dental work. I have payment history and utilization is currently around 32 percent. Credit score is 692 FICO 8 for both Experian and TransUnion. My goal is to reach 720. My question is I would like to resolve the collection account. But I have heard about if you begin negotiating with a collection agency, the account can start “re-aging.” Any suggestions on how to move forward would be very appreciated. Thank you — Michael


Dear Michael,
Raising your credit scores from 692 to 720 and resolving a $3,420 collection within the next six months poses a formidable challenge — but it’s doable! Just be prepared to make some major credit card balance pay-downs to reduce your utilization ratio, and be ready to pay that collection, either in full or by settling with the agency for less than the full amount.

Now, let’s take a look at how you can add 30 points to your score over the next half-year and retire that medical collection debt to the satisfaction of your future mortgage lender.

Earning 30 points
First, before looking at how to build your score, you’ll want to avoid shooting yourself in the foot by losing any points you already have. Fortunately, all this requires is making all monthly payments on time, controlling your card usage by not adding to any card balances and refraining from applying for or accepting any offers for new accounts.

In raising your score by at least 30 points, the biggest obstacle I see you facing is coming up with the cash to reduce those card balances to where your overall credit utilization will drop from its current 32 percent to somewhere in the vicinity of 1 percent. This cash can be applied in various ways among multiple accounts, as long as your overall combined utilization drops to this level over the next six months.

It will also be important to keep all cards open and use them regularly so they remain active. This will prevent the card company from closing the account or reducing your credit limit due to lack of use, which could raise your utilization percentage with the elimination of some available credit. Also, if you have any open cards you haven’t used in a while, you may want to dust them off, start making small purchases and keep their utilization at around 1 percent.

Resolving that $3,420 collection
You have a few options with which to resolve this debt, though, unfair as it may seem, none will help your score. Other than the mere presence of any collection negatively affecting your score, the only collection-related factor further impacting your score is its age — the older it is, the less impact — with neither the amount of the debt nor its paid-versus-unpaid status having any additional effect.

So why pay it if it won’t raise your score? This is where, while you never want to underestimate the importance of your credit score in the borrowing process, it’s not always just about the score. In most cases, collections and other forms of unpaid derogatory debt, such as unpaid charge-offs, tax liens, etc., must be resolved before considering a mortgage application for approval — regardless of the score.

On the positive side, since your 692 scores aren’t bad for credit reports containing collections, I’m going to figure that collection has been on your report for more than a couple of years, which bodes well for your chances of negotiating a settlement for less than the full amount due. Collection agencies tend to have a greater incentive to settle a collection debt the older it is and the closer it gets to the statute of limitations (SOL) for debt collection lawsuits. More about this later.

As an aside, future home buyers with collections on their credit reports will be burdened less by medical debt than they are currently, as some of the newest FICO scoring models apply less negative weight to outstanding medical collections and ignore paid medical collections entirely. Unfortunately, these models have not yet been adopted by the mortgage industry and are not expected to be in place within your six-month time frame. Further, when eventually adopted, mortgage lenders can continue to require that collection debts be resolved prior to closing a loan, the score notwithstanding.

Options for debt in collections
So, let’s look at four ways you can put this collection to rest and satisfy your future mortgage lender:

1. Pay in full
Simply paying what’s owed is the most straightforward way to go, though it is the most expensive. When resolving a debt in this or any other manner, be sure to get the collection agency’s commitment that it will update your credit report to show “paid” and provide you with written confirmation that you can provide the lender indicating your payment has been made.

2. Pay for delete
While often a long shot, requesting a “pay-for-delete” can be well worth the effort. Here you’ll contact the collection agency with a request that upon receiving your payment — whether in full or, better yet, at a lower amount — they promise to delete the debt entirely from your credit reports. The double-benefit of this method is that it both resolves the debt and, by eliminating it from your credit report, can also help your score.

3. Debt settlement
Should the agency agree to accept less than the full amount due in exchange for resolving the debt, but they won’t agree to delete it from your credit reports, a debt settlement can both satisfy the lender and free up some cash that can be applied to your credit card or other debt. Again, always get written confirmation of any promises made by a collection agency.

4. Waiting out the clock
This is where your question about the likelihood of the collection being re-aged by negotiating enters the picture. Collection agencies have a limited amount of time set by legal statutes of limitations that vary from state to state and typically range from three to 10 years, during which they can legally sue to collect a debt. After that, they cannot use the courts to force you to pay a debt, though a lender can still require resolution of any debt as a condition for loan approval.

Re-aging a collection debt can become a concern as, in some states, negotiating or making partial payments on a collection debt during that 3-to-10 year time period can extend the SOL by essentially resetting the clock. This should only be a concern if you plan to leave the debt unpaid past the SOL expiration and to wait until the collection is eventually removed from your credit report due to old age.

In your situation, this option should only be entertained if your collection has already passed or is close to the SOL for your state, and is within 6 months or so of reaching the 7-year mark on your credit report.

Like I said, it’s not going to be easy, but it can be done. Good luck!

See related: Get that debt settlement offer in writing, Statute of limitations laws, all 50 states


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