debt collection

Dear Liz: I am trying to help my daughter deal with enormous student loans.

She is a doctor and very busy and simply cannot deal with the stress of almost $350,000 of education debt. I want to help her refinance, but to get the best rate I would like to help her improve her credit score (even if it is already 712).

She had three small debts turned over to a collection agency after a visit to an emergency room a couple of years ago. We plan to pay them off. Do I have to ask the collection agency to erase them or contact the original creditor?

Answer: You mention that your daughter has a 712 score, but she actually has many credit scores that change all the time. Small medical collections can have an outsize impact on those scores — or they can have no effect at all. It depends on what credit scoring formula the lender happens to use.

The latest version of the leading credit score, FICO 9, ignores paid collections and treats unpaid medical debt less harshly than other types of collection accounts. The most commonly used version, though, is FICO 8, which ignores only those collections under $100 and doesn’t differentiate medical from other collections.

Some lenders still use older versions of the formula that punish people for even small collections.

FICO also has a rival, the VantageScore. The latest and most-used version of that formula, VantageScore 3.0, also ignores paid collections.

You can contact the lenders you may use to refinance the debt to find out which scores they use, and which versions. That could help you decide how hard to push to get these collections erased.

If paid collections aren’t counted, you can just pay them off and be done with it. (You’ll of course want to keep the paperwork showing the debts have been paid and have your daughter check her credit reports to make sure the accounts reflect a zero balance.)

If the accounts could hurt her even if they’re paid, you have a couple of options.

One is to ask the hospital to take back the accounts, since medical bills are often placed with collection agencies on consignment rather than being sold to them outright. Then you can pay the hospital, and the collections should disappear. (Although, again, your daughter will need to follow up to make sure.)

Another option is to try to negotiate a “pay for deletion” — which means the collection agency promises to stop reporting the account in return for payment. You’ll want this agreement, if you can win it, to be in advance and in writing.