What affects your credit score: Mike in Tucson, Mortgage LenderCredit tips for my borrowers, by Mike in Tucson, mortgage lender

The question:  "I want to improve my credit.  Should I pay off charge-offs and collections?"

How the system works:

Take a look at that yellow piece of the credit pie on the right.  Length of credit history is 15% of your overall credit score.

Among the data tracked by the Credit Bureaus is this little gem:  "date of last activity."  It shows on your credit report as DLA.

Let's say that you've come to me for a purchase money mortgage because your agent referred you.  Let's say further that you did some dumb things six years ago when you were in college, and you know that a few derogatory accounts are going to show up from that time.

The old beater you had in college was repossessed by the car dealer whose billboard still reads "NO CREDIT?  NO PROBLEM!  The dealer sold the car at auction, and sent you a bill for the difference.  The bill was for $580.  You didn't pay it.  The car dealer sold the debt to a collection agency.

Your credit report today says "DLA 11/2004."  If you do nothing, this derogatory collection account will fall off your credit report next November, after 7 years.  That's if you do nothing.

But you're making good money now working for Raytheon as an engineer, and you think to yourself "I can pay that.  I think I'd better get that paid and off my credit report before I go see the mortgage guy..."

You get out the checkbook, call the collection company and pay the $580.

What that means to you:

  • Derogatory accounts can be reported for seven years from the date of last activity.  What would have fallen off in 2011 will now be reported until 2017.  Oops!
  • You paid a debt, and yet it's more than likely that your credit score will go down in the near term.

If, on the other hand, you pay off a collection or charge-off that is 12 to 24 months old, it's likely that your score will improve!

Takeaway:

If you're my borrower, please call me before you do anything.  Let's talk it over, and improve your chances of qualifying for that home you want to buy from your favorite agent!

____________________

I'm Mike in Tucson, your preferred Tucson Mortgage Lender.

NMLS #223495

SUNSTREET MORTGAGE llc ~ Correspondent Mortgage Bank
Offices (AZ) Mesa, Tucson, Nogales, and Albuquerque, NM.

 

 
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31 Comments on Credit Tips For My Borrowers (Stuff You NEED to Know)

20 Most Recent Comments Displayed Show All

NOV
24
2010
873,941 Points 154 Featured Posts Localism Sponsor Outside Blog Hit Router Attended Rain Camp Called Shot Master

Mike, that is very good information, I didn't know if you paid off a collection, it made it come back up on your credit report. Thanks!
9:02am • #13
728,881 Points 15 Featured Posts Outside Blog Called Shot Master

Mike, this is good information. I would have thought paying off the debt would have been a good thing. Thanks.
9:30am • #14

Great reminder.  We often don't explain it this clearly to buyers.
9:38am • #15
121,750 Points Outside Blog Attended Rain Camp

Thank you for sharing, great post
9:43am • #16
655,474 Points 10 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Isn't that crazy?  Goes against all logic.......and underlines the need to get professional advice!
9:52am • #17
712,458 Points 118 Featured Posts Localism Sponsor Outside Blog Called Shot Master

Ann,

Truer words were never spoken.  :)

Kamal,

You're welcome.  Thanks for stopping by to comment!

James,

Why don't we require a course on Credit in High School?

Michael,

Yep!  It depends on what kind of debt, and how old it is.

Missy,

Maybe a course on this would be good for CE classes for Realtors.

Barbara,

That borrower will have to establish credit before being able to qualify for a mortgage.

Bill,

Thanks so much for the link!  We need more education about crredit.

Michael,

It's not intuitive, is it?

Mike in Tucson
10:13am • #18
836,047 Points 69 Featured Posts Outside Blog Called Shot Master

I like your post and your style.....I am an advocate of just paying cash (if you have it) for what you need...I am sick of the current credit systems who brand you over time like your a criminal....
10:57am • #19
175,524 Points 3 Featured Posts Called Shot Master

I've told people this before and it's a crying shame that it's true! I've also seen instances where, just because you contacted the collection agency about the debt, they changed the DLA.
11:28am • #20

Mike,

It does seem totally backwards but it is true. Good of you to warn folks!
2:09pm • #21
859,222 Points 8 Featured Posts Outside Blog Called Shot Master

Mike, thanks for your enlightening post...it's good info to pass along to everyone, no matter how much it really doesn't make sense, so I'm re-blogging this. I guess anyone who needs credit just needs to play the game, even with its silly rules. :)

Leilani
3:44pm • #22
1,123,544 Points 90 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Mike -- someone told me that recently and it sounded too unbelieveable to be true. Thanks for the info. I am reblogging.
4:20pm • #23
498,428 Points 22 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Good info - some of the ins and outs of credit scores are certainly NOT intuitively obvious.
4:22pm • #24
1,371,500 Points 151 Featured Posts Localism Sponsor Outside Blog Attended Rain Camp Called Shot Master

Ouch - very nice pie chart and easy to understand!
8:08pm • #25
364,941 Points 6 Featured Posts Outside Blog Called Shot Master

Now that is interesting Mike. Yes, the moral of the story is that if you have problems with your credit talk to a lender before you do what you THINK you should be doing.

@Renee. Had to smile at your comment about the pie chart. You're a push over when it comes to charts, aren't you? <another smile>
9:46pm • #26
NOV
25
2010
1 Featured Post Called Shot Master

Great tips, its good to learn about the credit reporting system.  Tell us more
11:27pm • #27

Thanks for sharing this... credit is more important than so many realize!
11:45pm • #28
NOV
26
2010
864,237 Points 20 Featured Posts Localism Sponsor Outside Blog Attended Rain Camp Called Shot Master

Sage advice from one of the masters of the mortgage market - thanks for the tips!
11:17am • #29
NOV
27
2010
214,957 Points 2 Featured Posts Localism Sponsor Called Shot Master

Mike thanks for sharing this excellent advice and tips. In today's economy we never know what might happen to cause some damage to our credit report. 
6:18am • #30
NOV
28
2010
381,519 Points 8 Featured Posts Localism Sponsor Attended Rain Camp Called Shot Master

A gMerry Christmasood one, Mike, and I like your pie too.
6:36pm • #31
JAN
06
117,880 Points

Nice Job Mike but I am disagree with paying any collection more that a month old...  any longer and your score will dip...  but thanks for the info..
5:56pm • #32

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Mike Jones

Mike Jones NMLS 223495

Tucson, AZ

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SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171)

Address: 2840 E Skyline Dr, Suite #230, Tucson, AZ, 85718

Office Phone: (520) 344-6943

Cell Phone: (520) 349-9090

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