Everyone believes that all it takes to fix their credit is to pay off the old debt and remove all the bad stuff from their credit history. Unfortunately, credit scoring doesn't work like that. Bad history is still bad history and you can't change history. You might be better to focus your attention on burying the bad history with new good history. I published a 10 part series on credit rebuilding that you might find helpful even though it is directed towards those who have been through bankruptcy. You will have to scroll past a lot of other stuff to find it, but it is there - follow the link below.
Also, while I appreciate your feeling that you want to pay the original creditor and this "stick it to the collector," this strategy doesn't work. Many times the original creditor no longer owns the debt so you are just paying the wrong party and your payment won't get any credit on your credit report. But even if the collector doesn't own the debt, the original creditor will still pay the creditor their commission for collecting the debt - it is in their contract! Hope this perspective helps!
There is likely no way to get a cedit score from the 400s to 650 in a few months. And remember a 650 is only average, and would get you a turn down from many lenders. You need to get over 700 and get the bad items a couple years off. So postpone the house plans unless you find a individual that will owner finance.
In many cases, 3rd party collectors have bought debts, meaning you can't pay off debts to teh original creditor. Also, in some cases, you can do settlements that may be negotiated to change the reporting on your report.
This is a case where spending an hour being coached by a lawyer for an hour could save you money and help you. Feel free to call me at 404-768-3509 to set up a strategy appointment. Don't expect miracles, but doing this wrong will be costly, as the lower your score the harder it will be for you to buy a home, and the higher your interest cost will be.
In some cases, you may also be able to get improper items removed from your report, so explore all your options. One warning: do NOT pay anyone for credit repair - that's a scam (and illegal in Georgia).
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You should pull your credit report and see who owns the debt. Pay the owner of the debt ad get everything in writing. I suggest you get a lawyer to help you ad it is not uncommon for debt collectors to try and collect ob settled debt
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1) Generally, it is better to pay the collection agency than to try to pay the original creditor. In my experience, there is a greater chance of an accounting error when you pay the original creditor on an account that they have placed in collections.
2) If the possibility of tax reporting is the only reason that you don't want a settlement, then I suggest you consider that a) only principal reductions greater than $600 are reported, and b) since tax rates do not equal or exceed 100% of you income, it is still a better deal to take a settlement than to pay the full amount of the debt.
3) You can ask in negotiations for the collector's trade lines to be removed. (First, of course, pull your credit reports to make sure that the collectors are even reporting.) Maybe the collectors will cooperate, maybe they won't.
4) I am not an expert in credit scoring, but from what I have seen, the move in your score that you asked about (400 to 650) seems less than likely.
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If you want to settle the debts, i would get proof that the party that wants the money actually owns the debt so you do not have someone else come back later and try to collect. You can either ask for written documentation of the debt ownership or get an indemnity agreement from the party you pay that they will indemnify you in the event someone else comes after you for the same debt. You can ask for the creditor to remove the item but they may not do that or want to do that. I
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