Written By: Edward Jamison, Esq., Jamison Law Group.
Edward Jamison is a Consumer Credit Attorney that specializes in helping people, from all across the country, increase their credit scores. If you have any questions, or are interested in hiring Edward, you can email him at JamisonLawGroup@aol.com.
With the exception of collections on student loans and unpaid child support (which must be paid in full due to government regulations) all collection agencies and creditors will settle for less than the full balance.
As a loan originator advising your clients on clearing up their credit issues prior to buying a home, here is a guide I have prepared explaining whether or not to settle collections and charge-offs that appear on credit reports (Hint: not all of them should be paid off).
My experience has been that settlements can be obtained at 25 to 65 cents on the dollar of the balance owed. However, collections or charge-offs paid or settled accounts will not delete it from the credit report - it will be updated and remain on the report for seven years. Special note: the 7-year time period starts from the time the person had made the last payment on the account - and NOT from the date the account is paid off.
In advising your clients on what they should pay to settle the account, always start with the assumption that they are willing to pay 100% of the debt under the condition that the creditor will agree to DELETE from their credit report with full payment. While it only works with collection agencies (and not credit card companies) this would be the best-case scenario because with full payment and the deletion, it will increase the credit score substantially.
On a side note, I do not suggest paying a collection in full, even with an agreement to delete, if the collection is over $2,000.
Collection agencies usually sell the collection to other collection agencies for pennies on the dollar so they are attempting to recover their investment.
Here are my suggestions on what you should advise your clients and when to, on when not to settle the collections and charge-offs:
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