Don't Give Up on Your Credit Score |
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by: Janna Weiss
Imagine that you’ve gotten far behind on your credit card payments. The accounts have been closed, but you manage to pay off your balances before they get charged off as bad debt. Since you’ve made good with your creditors, you’re shocked when your credit score doesn't rise as a result. What’s going on here? Is it really worth it to pay off your debts rather than waiting for them to fall off of your credit report in seven years?
It’s true that credit scores require patience. It takes a while to move them in either direction, but they tend to sink faster than they rise. That’s one unfortunate truth. Another is that, even though it might take months or years to get your credit score where you want it, it’s not a good idea to play the waiting game with delinquent accounts. Pay them off as quick as you can.
Why shouldn’t you save your money and just wait things out? There are several reasons. First, if you intend to buy a house someday, you’ll want your credit report to reflect that you paid your debts in full. Unresolved debts will disqualify you from most mortgages. Even if you paid the balances late, and even if the accounts were sent to a collection agency, it’s still better to pay up. Lenders will look at you more favorably if you do.
Also, consider the nuisance you might have to deal with if you decide to permanently default on your debts. You could be targeted by bill collectors, property liens, and even lawsuits. Depending on the size of your debt, you could have your paychecks garnished. It’s much less stressful to just pay the money you owe and not have to deal with harassment and litigation.
Finally, if any of your accounts are still open while you’re paying them off, this repayment will be noted on your credit report. Timely repayment history makes up slightly more than a third of your FICO score – the credit model used by most lenders. Start making monthly payments in full, as soon as possible. Your credit score will reap the benefits.
It’s sad but true that some people let their debts go indefinitely. They watch the negative items come off of their credit reports in seven years’ time. Others who pay their debts in full have to wait the same amount of time for negative marks to come off.
When you get behind in your payments, you’re not adhering to the agreed-upon repayment schedule, and the creditor has the right to report this to the credit bureaus. If you can’t avoid delinquency, at least pay off your accounts when you’re able to rather than letting them sit. By showing that you’re interested in making good on your debts, you’ll qualify for more loans than people who never pay up.
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