You decided to buy a house. Congratulations. Now comes the hard part: Qualifying for a mortgage. If you are like an average American citizen, your credit history is less than perfect. You decided to pull your credit report and saw that you have several accounts at collections. And as any reasonable person thinks, you said “If I pay them off, my credit rating will increase”.
The logic behind this thought is sound. But unfortunately, the credit reporting process deviates a little from causality logic. There are other things to consider before you take it upon yourself to start paying off old debt. Before handling collections during the mortgage process, it is in your best interest to contact your mortgage broker. They deal with this situation day in and day out and they can tell you what is in your best interest. It could be paying off the debt or at least making payment arrangements, or you may be better off by letting the sleeping dogs sleep in peace. Credit rating or credit scores, as they are most commonly known, gets calculated depending on many factors.
The two most important factors in this calculation are: How much of your credit are you using Are you making all your payments on a timely basis This goes without saying but to maintain a good credit score, you need to be making payments towards your debt on time, every time. This makes about 30% of your credit score. You miss a payment one time for one credit card. All your credit ratings will suffer. If you are having trouble making a payment to one or more of your creditors, do not play the emu and bury your head in the sand. Call them and talk to them. Make payment arrangements. If you are late 30 days or more and you have not attempted to contact the creditor, they will slap that late payment onto your credit report, faster than the blink of an eye.
