James Toney

Many of us have had to deal with an over zealous collector/creditor at some point in our adult lives, and know how awful the experience can be. There used to be a time when you could tell that collector to go fly a kite with little ramifications, unfortunately that time is not now. In the ever changing mortgage industry, your fico score is paramount on a conventional mortgage loan and the difference in scores could result in thousands of extra dollars to get the rate you deserve and in some cases eliminate the benefit of a refinance or purchase. So that pesky collection can have a severe negative impact on your choices.

I just touched bases with a former client that was on my rate watch because we had hit the target, and we were both excited to get her mortgage on a shorter term and save tens of thousands of dollars in the process. It had only been a few months since I put them on the rate watch and credit scores were above the magical 740 mark, so no hits, yeah! As part of the process, we collected updated documents and re-pulled credit, just sailing along with no worries. OUCH! 2 collections totalling a few hundred dollars had submarined the fico and is currently putting her savings in peril.

We are working on clearing these items up, but the problem with a collection is once it hits your report, the damage is hard to undo. To coin a phrase from my daughter's favorite elephant Horton - a collection is a collection, no matter how small. In this case a few hundred or so. My client said she would take care of them and pay them off, but unfortunately that action has very little positive impact. In order to undo what was done and to restore the credit standing, these collections need to be deleted from the report. Easy enough you say, but the real problems lie in the creditor's willingness to agree to remove them because in most cases they were not errors and you have probably already told them to kiss your grits as Flo would say.

The moral of the story is this. No matter how much you want to stand on your principles and refuse to deal with those that may have wronged you in your eyes, please keep an eye on the big picture. Amicably settling a debt before it hits your credit report is not only an easy task, but also an assurance of fewer problems down the road. Don't let a $150 disputed cell phone bill cost you tens of thousands of dollars on your home mortgage.