The Credit Challenge

Recently, I was on a forum pertaining to credit and I came across someone who had their credit score dramatically decrease.  Can you believe that his score dropped 100 points in about a months time?

Like many people, he was trying to pay off his derogatory accounts in preparation to buy his home, and he wanted to do everything possible to increase his credit score.  He went ahead and paid off his old accounts, and then wondered why his score dropped.  Well, here’s what I told him, and I hope that you use this advice yourself:

“The reason that your credit score dropped can quite possibly be because of your car loan being paid off early or the target account reporting while you have a maxed out balance, but those aren’t the biggest factors.

The biggest factor is that when paying old derogatory accounts, you always, always always have to be conscious of the last time they reported to your credit report.

Here’s an example. Suppose you have a collection that was from 3 years ago. You definitely owe on it, however, since it reported two years ago or more, it doesn’t do anything for your credit score to have it there, neither good nor bad.

So, in an effort to get it off your credit, you contact them and pay them off. OOPS, you now have new recent activity on your credit from these derogatory accounts that weren’t hurting your score anymore, and your score drops, because it is very recent.

So, where your credit score was rated without that collection, now immediately it is rated with this old collection that is now current.”

So, in reflection to that answer, the main thing is that it isn’t always a good idea to just go ahead an pay accounts off.  Your credit score may in fact go down.  I hope you can see the importance of seeing when the last activity date is on your credit accounts, because it can give you huge consequences!