Credit 101

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

Comments 19 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.

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  • 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

    • 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.

    • 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 I got a secure loan and paid 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

  • 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.

  • 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?

    • 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. or can refer you to one in your area.

  • 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 — 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

  • 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.

  • 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

  • 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.

  • 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.

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