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Will Collections Impact your Mortgage?

A question that comes up from time to time when discussing

mortgage financing is, “If I have collections showing on my

credit bureau, will that impact my ability to get a mortgage?”

The answer might have a broader implication than what you

might think; let's spend a little time discussing it.

Collections accounts are reported on your credit bureau when

you have a debt that hasn’t been paid as agreed. Now,

regardless of the reason for the collection; the collection is a

result of delinquency, it’s an account you didn’t realize was in

collections, or even if it’s a choice not to pay something

because of moral reasons, all open collections will negatively

impact your ability to secure new mortgage financing.


If you’re really late on paying on a loan, credit card, line of

credit, or mortgage, and the lender has sent that account to

collections, as they consider it a bad debt, this will certainly

impact your ability to get new mortgage financing. Look at it

this way, why would any lender want to extend new credit to

you when you have a known history of not paying your existing

debts as agreed?

If you happen to be late on your payments and the collection

agencies are calling, the best plan would be to deal with the

issue head-on. Settle the debts as quickly as possible and work

towards establishing your credit. Very few (if any) lenders will

even consider your mortgage application with open collections

showing on your credit report.

If you’re unaware of bad debts

It happens a lot more than you’d think; people applying for a

mortgage are completely unaware that they have delinquent

accounts on their credit report. A common reason for this is

that collection agencies are hired simply because the lender

can’t reach someone.

Here’s an example. Let’s say you’re moving from one province

to another for work, you pay the outstanding balance on your

utility accounts, change your phone number, and make the

move. And while you think you’ve paid the final amount owing,

they read your meter, and there is $32 outstanding on your bill.

As the utility company has no way of tracking you down, they

send that amount to an agency that registers it on your credit

report. You don't know any of this has happened and certainly

would have paid the amount had you known it was due.

Alternatively, with over 20% of credit reports containing some

level of inaccuracy, mistakes happen. If you’ve had collections

in the past, there’s a chance they might be reporting

inaccurately, even if it's been paid out.

So as far as your mortgage is concerned, it really doesn’t

matter if the collection is a reporting error or a valid collection

that you weren’t aware of. If it’s on your credit report, it’s your

responsibility to prove it’s been remediated. Most lenders will

accept documentation proving the account has been paid and

won’t require those changes to reflect on your credit report

before proceeding with a mortgage application.

So how do you know if you’ve got mistakes on your credit

report? Well, you can either access your credit reports on your

own or talk with an independent mortgage advisor to put

together a mortgage preapproval. The preapproval process will

uncover any issues holding you back. If there are any

collections on your bureau, you can implement a plan to fix the

problem before applying for a mortgage.

Moral Collections

What if you have purposefully chosen not to pay a collection,

fine, bill, or debt for moral reasons? Or what if that account is

sitting as an unpaid collection on your credit report because

you dispute the subject matter?

Here are a few examples.

● A disputed phone or utility bill

● Unpaid alimony or child support

● Unpaid collections for traffic tickets

● Unpaid collections for COVID-19 fines

The truth is, lenders don’t care what the collection is for; they

just want to see that you’ve dealt with it. They will be reluctant

to extend new mortgage financing while you have an active

collection reporting on your bureau.

So if you decide to take a moral stand on not paying a

collection, please know that you run the risk of having that

moral decision impact your ability to secure a mortgage in the


If you have any questions about this or anything else

mortgage-related, please connect anytime! It would be a pleasure to work with you!

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