Dear Debt Adviser,
I have bad credit and I am currently trying to rebuild and re-establish it. I have the money to pay off my bad debt, but I’m not sure if I should or need to. My debt is not loans or credit cards; it’s cell phone providers, medical bills and my gym. Basically what I was hoping you can help clear up for me is that in my research, it says to pay off debt, but they refer to debt as your loans and credit cards and never talk about phone companies and companies other than credit cards and loans. Should I pay off everything on my credit report? I paid one cell phone provider and it’s still on my report. Should I be concerned? Thank you for your time and help.
— Jake

Dear Jake,
My guess is that since you are savvy enough to read Bankrate.com, you must be pretending to be obtuse when you suggest that maybe non-credit card and non-loan obligations are not debts, in hopes that I’ll give you a pass. Sorry, not today.

I can see why you have bad credit. Credit is based on the belief — hence the term creditable — that you will do what you promise when borrowing money or deferring payment for a service. Namely, pay it back as outlined in the terms of an agreement. To improve your credit and credibility, you will need to pay all your past due accounts — in full and at once is best. Once you pay an account, it will be listed as paid in full. However, paying off the account does not remove the record of default from your credit report. The accurate negative information will remain on your credit report for seven years from the first date of delinquency that ended in the account charging off, which is typically 180 days past due.

Your credit score will not improve much by paying your past due accounts, and it shouldn’t. Credit scores predict the likelihood of your defaulting in the future. Based on your past, what do you think your score should show? However, paying what you owe is still a smart move for several reasons.

First, if you will need access to credit, insurance, housing or employment in the next seven years, getting them will be more complicated if you have a record of not doing what you promise. You will be perceived as a much higher risk for nonpayment than you are for just a late payment that has been rectified. Everyone makes mistakes. How you resolve them is what counts.

Second, collection activity will continue and become more expensive and more aggressive until you pay. If you owe any of your creditors a large amount, you might be sued. Should the creditor receive a judgment from the courts, your wages or bank account could be garnished.

Third, and most importantly, it is the right thing to do. You used your cell phone, a doctor or hospital helped you when you needed it and a local gym owner needs to pay staff and bills. Not paying, especially if you can, injures and insults your neighbors and community.

Strictly from a credit reporting perspective, utilities and service providers, including cellular telephone services, health club memberships and medical service providers do not typically report information to the national credit reporting companies until a debt enters a collection status. They fall into a category referred to as “alternative credit data.” These accounts are similar to traditional credit accounts, but different, as they typically only report negative data. Reporting positive data would help more people, particularly young people, immigrants and others who are new to credit establish a positive credit history. However, there are still technical and legal hurdles that have to be resolved before this happens. For instance, some state laws prohibit reporting utility data.

My bottom line advice is to pay everything you promised to pay whether it is on your credit report or not. Your credit score will improve with time and positive account information being added to your credit report.

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