Money Myths – Part 3

Money Myths: Part 3

Every day there seems to be new advice popping up on how to manage your finances. From credit score education to consumer proposals, there is a lot of information available online. This is the second part of a five-part series on Money Myths – Collections vs. Current payments.

Myth: The best way to improve my credit is to pay off old debts or debts that are in collections.

Fact: The truth is, once an outstanding balance has reached collections, the damage is essentially already done. Once an item is listed in collections on your credit report, that mark will stay with you for seven years.

If you are looking to make a major purchase (like buying a car or getting a mortgage) you should be aware of how long items in collections have been listed. If the item is close to seven years, it may simply be worth waiting for the item to expire.

If the item is newly listed and you don’t want to wait 6-7 years, there may be action that you can take. The best bet is you get in touch with your collectors and try to settle the debt and marking the debt as settled or paid in full. This item will still appear on your credit, but the payment will demonstrate that you are being responsible and working to fix the issues of the past!

With that in mind, the best way to build better credit is to make sure you are making all of your payments on time and in full. By managing your credit card, student loan, or Refresh loan, you will be continuously building your credit – just for being responsible!

So if you have to choose between paying an item in collections and managing a current bill – pay your current bill first! If the damage has already been done to your credit score, the most important thing you can do is make sure that you don’t let another item reach collections.

In our next blog, we will talk about the relationship between money and credit!