Does Paying Off a Debt (That’s Not Yours) Help Your Credit?

paying debt to boost credit

Are you trying to improve your credit so you can purchase a home? If you are, unpaid debts can sometimes derail your plans. This is especially true if that unpaid debt becomes past due or goes into default or is assigned to a debt collector.

But what happens if there is a debt that you either don’t recognize or clearly don’t owe that’s threatening the health of your credit? Should you pay something you don't owe just to protect your credit scores? On the surface it seems like an absurd consideration, to pay something you don’t actually owe. But it’s never that simple.

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Debts You Might Not Owe, But Should At Least Consider Paying

Joint Liabilities with a Divorced Spouse

If you co-signed for a credit obligation with your ex, the lender is not going to let you off the hook even if your divorce decree says you are not responsible for the debt. Unfortunately, if your ex is assigned the responsibility for a debt in your divorce settlement but fails to pay that joint liability on time, your own personal credit could become severely damaged.
You might be able to sue your ex if he/she fails to honor your divorce decree, but suing will not protect your credit. If you can afford to do so, it may be best to just suck it up and pay your ex's debt for now to safeguard your credit, and then worry about recouping the monies at a later time.

Disputed Debts with Service Providers

It can certainly happen. Sometimes service providers will try to collect for charges or fees you find to be unfair, like a final bill that wasn’t mailed to your forwarding address in a timely manner. Yet even if you are angry, it might be best to try to work out an agreement with the service provider that you both can live with, rather than flat out ignoring the bill. Otherwise, that bill you ignored could turn into a collection account that will remain on your credit reports for up to seven years.

Debts You Don't Owe and Should Not Pay

Debts Discharged in Bankruptcy

Debts that were included in bankruptcy should generally be updated to show a $0 balance on your credit reports soon after the discharge. If a debt that was included in your discharged bankruptcy still shows a balance, you can dispute the mistake with the three credit bureaus and the creditor in an attempt to have your credit reports corrected. If that doesn't fix the problem, you may need to consult with an attorney. Reporting a discharged debt as being “due and owing” isn’t allowed.

Identity Theft

The Fair Credit Reporting Act (FCRA) gives you considerable protections when it comes to identity theft. If someone has opened fraudulent accounts in your name you have the right to file an official identity theft report (identitytheft.gov) and to forward that report along with a dispute to the credit bureaus. According to the FCRA, once you have completed these steps the credit bureaus must remove the fraudulent accounts from your credit reports within four business days. And, you are not liable for fraudulent charges made on your credit card accounts, as long as you report the fraud to the card issuer.

The Danger of Not Paying

The bottom line is that only you can decide whether or not to pay a debt you do not believe you owe. However, before you dig in your heels and decide to fight it out, consider the consequences. Refusing to pay a debt when there is a disagreement could cost you far more than the debt itself if your credit is damaged in the process. In many cases it’s actually better to choose to pay a debt and continue to enjoy strong credit scores for the long term.