Credit Score of 612 With Outstanding Sears Debt

Reader Question: I am looking to buy a home by the end of this year and my credit score is 612. I have one bill in particular (Sear's) that I have had trouble with from the day I opened the account. I moved two years ago and right before I did I made a payment to them of $700, which was half of what I owed them. At that time I also sent them my change of address form and then completely forgot about it.

Now I am receiving notices from a collection agency wanting me to pay $800 and they will mark me as paid in full. Do I want to do this? Will this make my credit even worse? Also, can I fight this?

Brandon's Response:

If it's a legitimate debt that you have not paid, I recommend paying it off completely. It's best to resolves these things and put them behind you. Paying off an outstanding debt never hurts your credit score -- and in many cases, it will actually help your score going forward.

You will probably have trouble getting approved for a mortgage loan with a 612 credit score, and you certainly won't get the best rates at that level. If you can raise your score to 700 or higher, you'll have a much easier time getting a loan.

If you have questions about how to do these things, you might want to speak to a non-profit credit counseling agency. They offer free and low-cost counseling on this kind of thing. It might be worth your time.

If it's not a legitimate debt, and you feel you are being taken advantage of by the collection agency, then there are certain things you can do to protect yourself. Collection agencies are regulated by the Fair Debt Collection Practices Act. This link will explain what rights you have under this act.

You may also wish to visit the forums at the MyFICO.com website. Do a search for "Sears credit card" and you'll find a lot of people sharing their experiences on this matter.

Related Articles:
Will paying off my bills raise my credit score?
I settled credit card debt but collection agency says I owe?

I hope this helps you some. Good luck with your home buying process.