Home > 2011 > Credit 101

Credit Q&A: Will Paying a Collection Improve My Credit Score?

Advertiser Disclosure Comments 25 Comments

When you open a new line of credit, you enter into a contractual agreement with the lender to whom you will pay back the borrowed money per the terms of the loan or credit card. If you miss payments, the lender will usually try to work with you directly in the early stages of missed payment cycles in hopes of helping you become current on the account.

If you continue to decline paying as agreed, you will enter what is called late stage delinquency status and eventually the lender will write off or charge off your account (typically, when a consumer has become 180+ days past due). Generally speaking, your charged-off account is then “turned over or sold” to a collection agency, which will continue to try and collect on the amounts owed.

Many people assume that if they pay off the amount owed on the collection account, the collection will be removed from the credit report and, therefore, no longer have a negative effect on the credit score. This is a fallacy. The paying off (or paying a portion) of an amount owed on a collection account will not result in that data being removed from the credit report. The account will be updated, nonetheless, to show that it has been paid. The collection account and the original account, along with all previous late payments, will be deleted seven years from the original delinquency date.

Paying off the collection account may not have any positive effect on the credit score. The fact that a collection account is on your credit report (regardless of balance) is, in and of itself, predictive of future risk, as research shows that consumers with collection accounts on their credit report are less likely to pay as agreed in the future than consumers with no credit report blemishes.

This information should not be taken to mean a person should not pay off a collection account if they have the means and they are responsible for the account. It’s worth pointing out that lenders tend to leverage more than just a credit score for lending decisions and may have additional credit criteria that takes this into consideration when they review applications for new credit.

Image: Anikasalsera | Dreamstime

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Von

    We have recently learned of a collection on my husbands credit when speaking w/our mtg. co. concerning refinancing. Mtg. co. advised my husband to clear the collection up. It’s an old medical bill, 42 mo. old. We have been informed, since we live in TX statue of limitation is 48. What are your suggestions on handling this matter? We want to resolve, however do not have the entire amount listed on collection.
    Thank you

    • http://www.credit.com/ Credit.com Credit Experts

      If the debt has reached the statute of limitations your best bet would be to negotiate a settlement with the collector. That way you won’t have to pay the full amount (which the collection company paid pennies on the dollar for in the first place), and you’ll clear the debt so that there’s no outstanding balance which should appease the mortgage lender’s requirements.

      For more on how settling a debt will impact your credit, this article should help: Will Settling a Collection Account Hurt My Credit?

  • Tammy

    i had a alarm on my home n lost a job and decided to let that bill go un paid… can that debt ruin my credit?

  • IceSmoker

    Just paid a collection agency again for a debt I already paid them ($34)…… If they ask for it again then I’m going to lawyer up -_- I’m well off but I want to avoid court since it is so much stress.

    • http://www.credit.com/ Credit.com Credit Experts

      You shouldn’t have to pay a collection twice. Def. keep records of your payment, and keep in mind that if they’re attempting to collect a debt you don’t owe (because you’ve already paid it), it’s illegal under the FDCPA… and you may want to speak to a consumer law attorney.

  • tazzpatriot

    So I tried to get a house equality loan..was denied. Found out the bills I paid off werent updated..and found a few more..so I got a secure loan and paid them.off..got a cc from my bank..depusted the doctors bills that were suppose to be paid with my settlement. .did I mess up paying things off ? Trying to rebuild my credit

  • http://www.credit.com/ Credit.com Credit Experts

    If they DO actually update the your credit reports to reflect that the accounts were never late and were paid in full, it would definitely be better for your credit reports and scores but this doesn’t typically happen. Hopefully you got the agreement in writing so that if they don’t, you can dispute it.

  • http://www.credit.com/ Credit.com Credit Experts

    It’s impossible for us to say. Credit scores’ formulas differ, and people’s scores can and do change often. But paying off debt as agreed can only help your score. You can check your own credit score with our Credit Report Card. And here are some other resources you may find helpful:
    The Ultimate Guide to Credit Scores
    How Can I Help My Credit Score?
    3 Reasons Your Free Credit Score Looks Wrong.

  • brenda fernandez

    Dear Credit Expert
    My husband took out a school loan and a personal loan when he started school about 7 years ago. He spoke with Sallie Mae to begin paying his deferred school payment. They told him he had a personal loan that is past due. When my husband tried to ask details they told him it was turned over to a debt collection agency. We don’t have the means to pay and the debt collection agency or Sallie Mae had never contact my husband to pay this. It’s been 7 years, should he call the debt collection agency? We just got married, his car just broke down and can’t afford a car because of student loans. We surely can’t afford another loan payment…what do you advise?

    • http://www.Credit.com/ Gerri Detweiler

      The personal loan may be outside the statute of limitations. If that turns out to be the case, they probably can’t successfully sue you. However, I would hate for it it turn out that you don’t have correct or clear information about this loan. I’d suggest you talk with a consumer law attorney with experience in student loans. TheStudentLoanLawyer.com or NACA.net can refer you to one in your area.

  • http://www.credit.com/ Credit.com Credit Experts

    You are right that paying off the balance won’t help your credit score. It will, however, remove the threat that you will be sued — and a judgment would be a significant black mark on your credit reports. If you haven’t already done so, begin monitoring your credit reports. (Here’s how to get your free annual credit reports.) It would also be smart to keep an eye on your free credit scores from Credit.com — they include a personalized explanation of why they are what they are, along with suggestions for improving them.

  • anparo

    Hi, I a owe T-MOBILE and I wanted to pay the debt because a collector told me my credit will go up and they will put it as its was never late what can I do?
    and in my credit I see I have two auto loan and I only have one ho can I contact?
    Thank you

  • http://www.credit.com/ Credit.com Credit Experts

    Lalo —
    It seems unlikely, but you can certainly ask. If you are looking to rebuild your credit, though, we have some tips:
    How to Rebuild Credit.

  • http://www.credit.com/ Credit.com Credit Experts

    Yesenia —
    Probably not, as long as there has been no activity on the accounts. Here are a couple of resources that may help you figure it out:
    Does Your Old Debt Have an Expiration Date?

    Statute of Limitations On Debt Collection by State

  • http://www.Credit.com/ Gerri Detweiler

    Get it in writing! Please do not rely entirely on a vergal agreement. Insist they mail you the details. If they refuse then you send them a certified letter stating the terms of the settlement but it’s better to get it from them.

    As we state in the article, paying a collection account doesn’t usually change your credit scores.

    But you can get your credit reports in a month or so and if they are not updated with the $0 balance, dispute them.

  • http://www.Credit.com/ Gerri Detweiler

    You’ll simply have to check your credit reports to make sure they have been removed. It may make sense to spring for a credit monitoring through this process.

  • http://www.Credit.com/ Gerri Detweiler

    I’m sorry but I don’t understand what you are asking.

  • ThompT321

    My husband’s ex-wife voluntarily surrendered a car that was in both their names shortly after their divorce (without notifying him or offering to let him take over the car and payments), and now, 4.5 years later, he just got a collections notice for the difference between the loan and what it sold for. It’s already damaged his credit, but should we pay to avoid any issues? We have no way of contacting his ex for payment, either. We are planning on buying a house in 5-6 years, and I read that paying can inadvertently reset the timer on the debt, plus it’s a considerable amount of money we’d basically be throwing away. Thanks!

    • http://www.Credit.com/ Gerri Detweiler

      He may want to check the statute of limitations on the debt to start. If they have expired then he couldn’t successfully be sued. By way of reference see: Statute of Limitations On Debt Collection by State If the debt is not time-barred then there is the risk of a lawsuit.

      In terms of what’s on his credit, repossessions and collection accounts have specific time frames they can be reported, paid or unpaid. So he needs to think about when these will drop off his credit reports (and it could be before you plan to buy your home).

      • ThompT321

        Great, thanks! The statute of limitations in the state the loan was taken out is 6 years, so it would expire January 2017. The notice was from what appears to be a small collections agency, and they haven’t called us at all. It was in the divorce paperwork that she kept the car, but unfortunately she gave up the car before refinancing it, so I guess he may be liable for the debt, and he is in the military and would rather pay to avoid being sued. I’m wondering if taking a wait-and-see approach would be the best move for now.

        • http://www.Credit.com/ Gerri Detweiler

          As long as they can locate you, you must be served with a notice of any lawsuit. But it’s really up to you to decide whether to wait and see or resolve it.

  • Jeanine Skowronski

    It should help your score. You can find more tips for improving here:




Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team