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Never Pay Collections as a short-term strategy to improve your FICO\\xae5 credit score

In the mortgage industry we are required to use FICO\\xae5 and that is dictated by Fannie and Freddie. The version that we use to underwrite a mortgage in 2015 is FICO\\xae5 with that version of the FICO\\xae score if a borrower pays a collection that has a two year old reporting date and you make a payment, it changes the reporting date on that collection to today. Bringing the reporting date current will decrease your credit score every time (except one specific situation that we will talk about shortly) FICO\\xae5 looks at the collection Like it just occurred.

In some of the newer versions of the FICO\\xae scoring model(8&9) When collections are paid if will not count toward your credit score at all. I think that is a important improvement but we\\u2019re not quite there yet.

As of 2015, when old collections are paid, (even when the reporting date is current) a consumer\\u2019s credit score will go down initially for a month or two. Then it will start to improve slowly, PROVIDED nothing else is paid late and the revolving balances on other accounts are paid down.

The most important thing to remember is paying a collection will cause short-term pain for long-term gain except for one specific situation.

I found that if the collection is being reported recently (current month) and the balance is being reported as currently past due. If a consumer has that specific situation and they pay off the collection, then the next month their score will increase.

There are two caveats;

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This is a very specific example, in every other situation paying off a collection is going to hurt your score initially. As time goes by consumers scores will increase if they have good credit habits.

If you\\u2019re looking for other ways to improve your credit score please go toGetLoanReady.com you can get free videos and worksheets to increase your credit score from a more holistic perspective. Never Pay Collections

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Never Pay A Collection

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If you want to see more videos about credit and credit scoring check these out\\xa0atwww.thecreditguy.tv.\\xa0If\\xa0 you are a mortgage lender please share this on yourFacebook or LinkedIn page. \\xa0 If you have any questions, leave them down below I\\u2019d be happy to answer them.

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7 secrets of a perfect credit score

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Go to www.getloanready.com to find other ways to improve your credit score. I\\u2019m Dave Sullivan here for the credit guy TV so you with a little bit me we\\u2019re going to change the credit industry thank you

Why is my credit score different when a lender pulls it?

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