A Credit.com reader recently wrote in with this question about rebuilding her credit score:
Your information has been very helpful. I just pulled my three credit reports and have scores ranging from 576 – 587. I see that I owe a cable company bill for $211. Will it really help boost my score if I settle or pay it off? And also I have two credit cards that I pay, but not always on time. One fell behind for four months, and the other one was doing good but I missed a payment last month. I need to refinance my home after a divorce, to remove my spouse’s name from the mortgage.
— Thank you, Marie
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The cable bill sounds like a collection account since these types of accounts are not typically reported unless they are turned over to collections. If that’s the case, then paying it is unlikely to boost your credit scores. A collection account is considered negative, and that’s true whether it’s paid, settled or unpaid. However, your mortgage lender may require that bill be paid before you can get a mortgage, so it’s something you’ll want to discuss with your loan officer.
As for the recent late payments on your credit cards, you probably already know that those may be very damaging. You didn’t indicate whether the credit card that was behind for four months is being reported as four 30-day late payments or if it was 120 days late. I suspect the former, as most card companies will charge off an account when it becomes 120 days late. Recent late payments in particular have a strong impact on your credit scores. Assuming the account was 30 days late four times, it may be better than falling severely behind (typically 90+ days delinquent or more), but it’s still not good. Recent late payments in particular have a strong impact on your credit scores. The score also penalizes you more for the frequency of those late payments. For example, one recent 30-day late isn’t nearly as damaging as four recent 30-day lates.
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Marie, I am concerned about two things here. One is the fact that it may be difficult for you to refinance soon. If there is a specific time frame spelled out in your divorce decree, you may have trouble meeting that deadline. I would encourage you to talk with an experienced mortgage loan officer who works with multiple lenders to find out what programs might be available to you at this time, and what the interest rate might be. If you do not qualify now to refinance, ask the loan officer for guidance on what you need to do to be able to qualify.
My second concern is the fact that you are still having trouble paying your bills on time. If the problem is that you are just busy and forgetful, then that’s something that can be fixed by setting up automatic bill pay or payment alerts. But if it’s because you are juggling bills and living paycheck to paycheck, then your home may not be affordable, and you may need to look at other options. It would not be a bad idea for you to talk with a housing and credit counseling agency to see what they can recommend for getting your finances—and as a result, your credit—back on track.
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