I want to preface this article by saying that any of bad advice I’ve seen given by mortgage brokers was purely unintentional.  Brokers know what they need to see in order to get you a loan approval, but that doesn't mean they know the best way of getting it done.

The most common scenario are consumers with marginal credit, typically with credit scores floating around a 640. The culprits are usually older, unpaid collection(s) and it’s likely the broker may advise paying them off in order to obtain the loan.

On the surface it sounds like sound advice, but paying off old debts may have an opposite, negative effect to your credit scores. Here’s why…

It’s All About Age!
The amount of damage a negative account does to your credit score is largely based on the age of the debt.

For Example: A new collection account may carry approx. 75 negative points on your credit report. While 4 years old, that same account may only carry 10 negative points due to its age. 

So How Do You Calculate Age?
It’s called “Date of Last Activity”. In other words, the last day you made a payment determines how old the debt is considered. The broker’s advice to pay it off could make the debt appear brand new and actually put that loan completely out of reach.

Again it’s not he brokers fault, they’re not credit repair experts. They only know what they need to see in order to get loans approved. If you ask me, this is one of the biggest flaws in the credit scoring model. It gives consumers no incentive to pay off older debts.

So what other options do you have?
Credit Repair is one option, but you don’t necessarily have to hire a credit repair company to accomplish your goals. On older debts, often times Collection agents have all but written the debt off and offer great deals if they can collect anything.

Many times you can offer a reduced settlement amount and negotiate to have the debt removed entirely from your credit report. Another very likely scenario is that the credit bureaus cannot even verify the debt in which case it will be removed without paying a dime.

Here’s My Point.
I assure you that brokers will do everything they can to get you approved - their paychecks depend on it. That doesn’t make them experts in areas outside their respected fields.

If you have a few items on your credit keeping you in the “almost approved” category, educate yourselves on all the options.

Remember, there is more then one way to get the ball in the hole.