I’m always telling clients that even if they’ve made a total mess of their finances, with the right strategy in place and time passed- those financial mistakes can get rectified.

There are several situations however, where you need to clean up your credit report *NOW* and paying off old debt can work to your advantage. For instance, if you’re planning to buy a car, apply for a mortgage loan or refinance your home, your lender is going to take a close look at your credit history. Knocking out those old debts once and for all may not do your score any good but it will show the bank that you’re serious about taking care of your financial obligations.

If old debt is haunting your credit report, here are a few things you should know before paying it off.

Paying off a Delinquent Account

If a credit account is simply overdue and shows as outstanding debt, paying it off will improve your credit score, as will making any payments against it. You will not be able to eradicate the late payments that are showing, but returning the debt to current status and reducing the overall amount owed will both boost up the number.

Paying off a Charge-off

These payments can actually reduce your credit score rather than improve it. If you have an old debt on your credit report that has been charged off by the lender – meaning that they do not expect further payments – setting up a new payment plan can re-activate the debt and make it appear to be more current than it actually is.   Remember, newer debt weighs more heavily on your credit report than older debt.

Settlements

If you choose to settle with a lender for less than the total owed, the arrangement will show on your credit report and depending on how it is reported, may drop your score.  The best possible outcome is to negotiate with lenders to mark the debt as paid, which has a positive affect on your score.

A good credit repair strategy should involve analyzing each debt and predicting how changes to it will affect your overall score.  If you need help with credit repair, debt settlement or payment strategies, give me a call and let’s discuss what your options are.

Until next month,

Erik Kaplan

THD Credit Consulting ・(800) 822-7120 ・kaperik@gmail.com

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