By Will Frazier
The first thing we are taught to do to improve our financial situation is to pay off all your debts. While this is a logical and ethical thing to do it doesn’t take into consideration how those transactions affect your credit score. While paying debt is a good thing you will find that the system that controls credit isn’t as forgiving when you finally reach into your pocket to pay off that old debt.
- You extend the amount of time it stays on your credit report.
There is a law that states “negative” information on your credit report can stay there for a maximum of 7 years depending on the type of account it is. This 7 years starts on the “date of last activity” or DLA. The DLA is the last time you made a payment on an account.
With collection companies, whether medical or some other bill, you never made a payment or had a transaction with the collection company so the date that they received the debt is “supposed” to start the 7 years for you on that account. As soon as you pay them you force the DLA to update to that current month you paid it. So if they received the account 5 years ago and you only had 2 years left then you paid them, guess what? You just extended the time it will show on your report for another 7 years!
You will cause your credit score to drop is not just stay lower for longer.
Everything dealing with your credit has more effect when it happens within the most recent 24 months because that time frame is considered current when dealing with credit. So, since the DLA on that newly paid collection account just changed to the current month the collection company also makes sure to change the open date on that account to the current month.
This also makes the account look like a newer collection on your credit report and causes your score to drop if it wasn’t already low. If it was low the effects from this will cause it stay low for a longer amount of time, like 24 months.
- You paid money to worsen your situation.
If the other two things weren’t bad enough remember this. You just paid money out of your pocket to hurt your credit score and worsen the situation. You have also set yourself back on time because now it can take you a year or two to naturally recover from these effects and try to get that home you wanted before the year was out. So what is the solution?
So what can you do to improve your situation if you have a bunch of collections and medical bills sitting on your credit report? The answer is to force them to validate that the debt is yours. You would be surprised by how many times collection companies report duplicate bills, bills that aren’t even yours, or bills that you have already paid to the original companies. Under law, a collection company must provide documentation to prove that you owe what they say you owe and in most cases they don’t even have this documentation.
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You can learn how to send disputes like these and repair your credit yourself as a member of the 850 Club. You could also contact Clean Slate Credit if you reside in the states of AL, MI, or NY to have a professional look at your situation.
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