1. Why Paying off Collectors may be Severely Damaging Your credit www.LibertyCreditConsulting.com 978-6DELETE (978 633 5383)

2. Many consumers believe that paying off collections is the best way to improve credit In reality, paying off collections will almost always HURT your credit scores

3. Today we will focus on exactly what happens to your credit when a collection is paid off At the end of this webinar you will know all the facts and insider secrets that collection companies don’t want you to know

4. Reason 1:Paying off a collection updates your SOL Every account you owe money on has a Statue of Limitations SOL This SOL determines how long by law a creditor can collect on that debt.

5. The SOL varies based on the state you live in or the state you acquired the debt Each state has different time frames that collectors can attempt by law to collect on that debt

6. Your SOL will also vary based on the account type Mortgages, judgments, and tax liens are a few accounts which have longer times where the debt can be collected on Credit cards and other installment loans usually have shorter times that collectors can collect

7. Many states have a Statue of Limitations of 4 years on credit card and contract debt. This means the collector can only collect for 4 years beyond the Date of Last Activity of that account Mortgages in many states have a SOL of 7 years where the bank can pursues you to collect on that debt

8. When a payment is made on a collection account the Date of Last Activity is updated to the date the payment was made

9. For example, let’s say you had a CHASE credit card that went into collections 3 years ago If the SOL was 4 years, that would mean you can only be pursued for 1 more year on that account But when you make a payment, you update the Date of Last Activity on that account extending the SOL

10. If you make a partial or full payment to that collection company today, you reset the SOL to today when you made that payment They would have only been able to pursue you for 1 more year if you didn’t make a payment.

11. But now that a payment was just made, you just reset the SOL and now the collector has 4 MORE years to collect starting from the day you made the payment

12. When you pay off a collection you extend the Statue of Limitations on how long that collector to collect. This is one great reason you do not want to pay off a collection

13. Reason 2: Paying off a collection does not change the account “status”

14. If you have an account in good standing it reports as a “1” status For example, a paid as agreed Mortgage reports as a M1 status, and a paid as agreed Revolving account reports as a R1 status

15. When late payments occur, that “1” status changes based on how late the account is being paid The first late payment changes the status to “2” and as the account becomes further behind the numbers increase until the account ends up in a collection as a “9” status All collections report as a “9” status and severely damage your credit scores.

16. Your credit scores are a mathematical model designed to depict your risk of going 90 days late on an account in the future

17. When you have collections and “9” status accounts your risk is high and your scores are lower as a result When you pay off a collection, the account still remains a “9” status It is still looked at as a defaulted account, and you still are just as high of a risk for defaulting in the future

18. The truth is, your scores will not go up when a collection is paid because the collection “9” status still remains and it is still looked at as a defaulted account Paying off a collection will NOT raise your scores for this reason

19. Reason 3:Paying off a collection will update your Date Reported Every account on your credit report has a particular time it can be reported for

20. The times these accounts can report varies based on account types Most negative accounts remain on your report for 7 years. Tax liens, bankruptcies, and other government accounts can remain on the credit for 10 years Other IRS type debts can remain on the report indefinitely

21. The time starts from the date you went late, NOT your date of last payment like the Statue of Limitations Many creditors will update this date when a collection is paid off, even though they are not supposed to by law

22. But if you are in a re-payment plan for a debt, and miss a payment, they can legally update this date on your reports

23. For example you have a Capital One credit card which you started going late on 4 years ago The account is due to drop off in 7 years, so since it is 4 years old already it will drop off in 3 more years But in many cases when you make a payment on this debt the collector updates this date to the date you make the payment

24. That means that account will now report on your credit much LONGER than it should. It was due to drop off in 3 years based on the prior example, but now that clock is reset and will remain for another 7 years.

25. Paying off collections in many cases updates your account so collectors can keep the negative item on your credit report much longer than it should be

26. When you pay off a collection many items on your report are updated. Ads you know now, most of them are not good and will severely hurt your credit score

27. The only good thing that happens is the balance is reported as $0 if it is paid off Your scores benefit a little based on now having a $0 balance instead of an outstanding balance.

28. But having a $0 balance does not outweigh having the Date of Last Activity updated, so your credit scores mostly will go down as the bureaus see it as a recent collection and still a “9” collection status This means your risk is still high, and your scores stay low

29. The only way to improve credit is to DELETE the negative item When the item is deleted, all the history is wiped out and the “9” status collection is gone for good

30. If you do want to pay off a collection, make sure you obtain a Pay to Delete letter to have the item removed completely. Otherwise, dispute and delete your negative items

31. But don’t pay off collections or you WILL hurt your scores due to these 3 reasons on how that paid off collection affects your credit scores

32. Be ready for life’s greatest adventures! www.LibertyCreditConsulting.com 978-6DELETE (978 633 5383)