Monday, December 17

Should you pay an old collection account appearing on your credit report?

Alright, so they probably did something that made you mad. I can relate! Once I was a cellular customer with the same company for over 6 years. Each year, my contract would 'automatically' renew. Anyway, when I ultimately switched carriers (yes it was before the anniversary date of my contract) I was charge a $175 cancellation fee.

To say that I was upset is an understatement! The way that I see it, the early termination fee applied if I were to cancel during the first 24 months, not the first 60 months!

Anyway, I didn't pay it. As a matter of fact, they referred the account to collections, and ultimately it wound up on my credit report for seven years.

I didn't feel it was right of them to charge me this fee. Because I wasn't willing to see the forest through the trees, I wound up paying more in higher interest rates than I would have had I just swallowed my convictions and paid the fee.

So, that is my story. Do you have collections on your credit report that for one reason or other you don't feel you should pay? Is this really helping you or hurting you?

Is it hurting your credit score? Yes, absolutely. The more recent the collection item is, the bigger the impact it has on your score. But, just as importantly, a collection item might mean that your receiving calls from a collection agency. This can make you feel like your finances are in trouble (maybe they are) and this can take an emotional toll on you.

Do you need a loan? All lenders are different, but many will want to see that your paying or have paid the collection accounts before lending you any money. Paying these collections could improve your creditworthiness. Are these collection items on your credit report keeping you from earning a preferred interest rate from the lender? Is your credit costing you more just because of these accounts that you've overlooked ?

Here are some free educational booklets from MyFICO that help you understand how collections play a role in your credit score.

The verdict? Well, that is for you to decide. My thoughts are that if it is a debt justly owed, then pay it. If you feel that it is unjust, then pursue getting it amicably resolved. Any account on your credit report is disputable. So if it isn't right, you can contact the credit reporting agencies and file a dispute. If the party reporting the account fails to respond to the investigation (many of them do not respond) then the account will automatically be removed from your credit file.

In the end, like so many things in life, it's up to you!