Not necessarily.

Whether a collection account must be paid before closing depends on the loan program, the size of the collection, the lender’s guidelines, and your overall financial profile. Some collections may need to be paid, while others may not affect your mortgage approval at all.

One of the biggest mistakes borrowers make is paying off collections before speaking with a mortgage professional. While paying a collection may seem like the obvious choice, it doesn’t always improve your mortgage qualification—and in some cases, it can temporarily lower your credit score.

When a collection is updated to a zero balance, the creditor reports new activity to the credit bureaus. Depending on the credit scoring model being used, that recent update may change how the account is scored. It’s not uncommon for borrowers to see little improvement—or even a temporary decrease—in their credit score after paying a collection.

For that reason, it’s important to have a strategy. Sometimes paying a collection is absolutely the right move. Other times, it may be better to wait until after closing or explore other options that have a greater impact on your qualifying score.

Before paying off any collection account, let us review your credit report. We can determine whether paying it is likely to help your loan approval or whether it could create unnecessary delays or reduce your mortgage FICO score.