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Credit Utilization vs. Accounts in Collections
I did my taxes and am getting $1,000 back. I currently am at 72% credit utilization and have $5,000 in collections debt. Where would the $1000 make the most sense to pay to improve my credit score? $1,000 to my credit card would but me at 49% utilization but if I pay collections I could close out 3 of 9 accounts.

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Lots of options.

Helpful to 2 out of 2 people

Great Question!  Unfortunately there’s no exact right answer without knowing your exact situation.  However, I will attempt to give you some pointers based on the information here already.

First of all, paying off collections will show future creditors that you take care of your obligations.  However they will also see that you were in trouble at one point for up to 7 years after you make that payment effectively causing the debt to haunt you for the next 7 years.  So then you may want to negotiate a pay for removal of the debt from your credit report PRIOR to paying anything and only making a payment if they agree in writing to remove the debt from your credit (just understand that if it’s a collector reporting the debt, it will not remove the original creditor’s listing should it also be on your report as a charge off or otherwise.)

However I would even think about negotiating a settlement or payment arrangement unless the collection company provides legal proof the debt is even valid.  Meaning that you might be able to get the debt off of your credit report simply by asking them to provide actual proof you even owe the debt.  Keep in mind most collection companies will buy debt from other people, and they may not even have all the paper work that shows the debt is actually yours, but report it anyways…..  This method could help in removing the debt from your credit reports because they can’t report untrue or inaccurate information to the credit bureaus and could be forced to remove the account from your report.  So I would first ask for the collections to verify these points in a written letter: 

  • What the money you say I owe is for.
  • Explain and show me how you calculated what you say I owe including a complete payment history, starting with the original creditor and all fees itemized, including any receipts or invoices for any third party fee that may have been added to the original debt as part of the amount you say I owe.
  • Provide me with copies of any papers that show I agreed to pay what you say I owe, including a copy of the contract with my signature from the original creditor showing that I owe the debt.
  • Provide a verification or copy of any judgment or filings if applicable.
  • Identify the original creditor.
  • A copy of any canceled checks or bank statements to proving an electronic payment from myself to the original creditor.
  • Proof that the Statute of Limitations has not expired on this account.
  • Show me that you are licensed to collect in my state.
  • Provide me with your license numbers and Registered Agent information.

After that you may just be able to remove 3 or 4 (if not all) of the collection accounts without ever even having to pay a single cent (minus postage for the letter of course). 

If all of that is done, you can then use the money to pay down your current credit balances to raise your score even more.

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