Julie in Orem Utah, like many other young folks, made some poor financial choices in her late teen years. In addition to bouncing a few checks, she signed then defaulted on a gym membership contract (yes, those gym memberships are enforceable contracts).
Turn the clock ahead 3 years. Julie gets married and they want to buy a home. Both her and her husband's incomes are needed to qualify. Upon accessing their credit report, we quickly discovered that while her credit history is generally good, four collections showed up, sinking her credit scores below the minimum threshold required to qualify for a home mortgage.
The four collection accounts totaled around $1,500. The two bounced check and the gym membership collections were with one collection company. The medical collection was with another.
Fortunately, Julie and her husband came in to see me before they went shopping for houses. (Finding the home of your dreams and having those dreams dashed on the rocky shore below can be devastating.)
Here's the kicker. Not only did these collection accounts need to be satisfied (paid off), in order for Julie to purchase a home within the next year (and take advantage of the government tax credits), these collection accounts had to come off her credit report altogether. Why? Because credit scores are, in large part, calculated from recent activity, a recently paid off collection account will have drop the credit scores more than an older collection account with a past due balance.
Before going to battle, I told Julie and her husband, here's what you need to know about collection companies:
1. Their one and only objective is to get money from you.
2. They have no moral obligation to you or anyone else, including the credit bureaus, to be sure that you are taught a lesson, or that they recover the entire debt.
3. They most likely purchased the debt from the creditor for pennies on the dollar.
4. Unless the debt is significant, they will not bother taking you to court and force collection.
5. Any money they collect is gravy. They'll take what they can get, within reason.
6. They cannot be trusted.
7. They lie. No matter how nice they are to you over the phone, they are your enemy. Don't forget that.
8. They will tell you anything, even if illegal, to force you into sending them money.
9. Get everything in writing BEFORE sending them money.
I had Julie call up the collection companies and off them 40% of the amount owed ONLY IF they promised in writing to remove the collection account completely from the credit reports. The collection company will say they can't do that, or it's not legal, bla, bla , bla, but they can and they usually will. Julie told them that if they don't cooperate, she won't buy and she'll wait until the account falls off in 7 years.
The collection companies cooperated. Julie paid just under $800 to settle the debts AND those collection accounts were removed from her credit report as if it had never happened. Her credit score improved to over 740! That's where you want to be.
Moral of the story: talk to a mortgage professional who really knows how to do this first and don't be afraid to negotiate with collection companies.
Julie, her husband, and their new baby boy, now enjoy that brand new home, which, by the way, came with $12,000 of soon-to-expire government credits. That's a lot of diapers.
Will this strategy work for you? Contact me and we'll see. Brian 435-862-9000
High and medium risk tolerant investors are making buying decisions and are doing some bottom fishing. 
