Paying Off Delinquencies
If you have delinquencies on your credit reports, your mortgage lender may ask that you pay those delinquencies off. For example, there may be accounts in collections that you've never managed to pay, or a lender may have charged off a debt that still appears on your reports. Some mortgage lenders want these issues to be resolved if they are going to grant you a loan.
Paying off old delinquencies should improve your credit, not damage it. Supposedly, the credit-reporting companies have fixed things so that this does not occur. However, this is a fairly recent fix. Therefore, you may want to play it safe for the next few years. If you have to pay off a delinquency, do it at closing.
If you find that a mortgage lender is asking you to pay off old delinquencies in order to get a mortgage, proceed with caution. If the delinquency is from three or more years ago, you should insist on paying the item off at closing. If you pay it off before closing, the account will have recent activity on it, and it could damage your credit. Note that delinquencies are bad no matter what, but old delinquencies on accounts are not as bad. If your credit is damaged from paying off one of these delinquencies, your mortgage loan could be affected. Furthermore, if the home purchase does not go through for any reason, you will be stuck without a home, and with worse credit than when you started.
