It never ceases to amaze me that every once in a while, maybe every two years or so, a customer who is paying off collections in an effort to become mortgage ready, stops paying other bills on time in order to have the funds to pay off old collections. I can't quite understand how this makes sense to the customers. At that point, I've explained that collections have had an adverse impact on credit score, so one would think that new collections, late payments on installment loans, or past due amounts on other debts, would, too, have an adverse impact on credit. But without fail, every once in a while someone says, "I did as you instructed- you told me to pay off collections, so I did". Then they proceed to tell me, "I made payment arrangements on my car loan to have the money to pay off the collections." Well, this would be fine in theory if the lender reported you on time to the credit bureau, but I've never seen this happen.
NEVER STOP PAYING CURRENT BILLS TO PAY OFF PAST DUE BILLS. ALWAYS PAY YOUR CURRENT DEBTS ON TIME!
NEW PAST DUE AMOUNTS ARE JUST LIKE A COLLECTION!
ROLLING LATES ON CREDIT CARDS, STUDENT LOANS, AUTO LOANS, ETC. WILL HAVE AN ADVERSE/BAD IMPACT ON YOUR CREDIT.
DO NOT PUT STUDENT LOANS IN DEFERRMENT AND STOP PAYING THEM B/C A CUSTOMER SERVICE REP. GAVE YOU A VERBAL THAT YOU CAN NOW STOP PAYING. WAIT UNTIL YOU HAVE THE DEFERRMENT IN WRITING.
Listen folks, these are all RED FLAGS to underwriters that you are walking too thin a line with your current obligations to be able to afford a debt that is going to have unexpecteds- i.e.- some day as a home owner, things will come up that you didn't expect- like property maintenance, increase in taxes, increases in insurance, etc. BUYING A HOME COSTS MORE THAN JUST YOUR HOUSE PAYMENT. Other unexpecteds could happen like job loss. An underwriter wants to know that you are resourceful. They don't want to ever think that when times get tough you'll just stop paying your debts on time.
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