Does Paying Off Collections Improve My Credit Score? (2024)

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice.See Lexington Law’s editorial disclosure for more information.

Most negative marks can remain on your credit reports for up to seven years, and may affect your credit until the item is removed.

Our guide will explain why paying off collections alone doesn’t usually improve your score, and we’ll offer tips on how to potentially get old debts removed from your credit reports.

According to most credit scoring models, paying off a collection account doesn’t stop it from having an effect on your credit. You’ll usually have to wait until they reach the end of their seven-year reporting window. The good news is that the older the information is, the less impact it should have on your credit.

While paying off collections may not generally improve your credit—see below for an exception to this—there are still a few benefits of paying off collections:

• You can avoid a debt collection lawsuit for unpaid medical or credit card bills.
• You can dodge interest fees from debt collectors. Debt collectors constantly buy and sell accounts and can continue to charge you interest and fees on purchased accounts.
• It will show up on your credit report as “paid in full” or “settled.” This could positively influence lenders who might look beyond your score to your credit history. A person who pays back a severely past due account shows more financial responsibility than someone who never paid it.
• You can eventually benefit from one of the newer FICO® Score models. The FICO 9 model gives less weight to medical bills and ignores paid accounts in collections entirely. This model is rolling out very slowly, but eventually it should be used by most lenders.

As of summer of 2022, any paid medical debt in collections should be dropped from consumers’ credit reports, as well as any medical collection debt under $500. This is a win for all consumers, especially those struggling with medical debt, and it’s a great reason to pay this debt off even when it’s past due. And though this only applies to medical collection debt, we do still recommend paying off collection debt when possible.

The first step you need to take is to order your credit reports from the three major bureaus: Experian, TransUnion and Equifax. Collections may be reported to only one or two bureaus. There are a few different ways you can try to remove collections from your credit report, some with more success than others. We review these options below.

Bear in mind that the results of these methods vary and not every consumer will have the same outcome. However, it’s always worth exploring, and your credit may improve as a result.

1. Send a pay for delete letter

Collection agencies and lenders may remove collection accounts if you negotiate with them. One tool is the pay for delete letter, which is a written request to have negative marks removed in exchange for a partial or full payment.

A collection agency is contracted to collect payment on a debt for the original creditor or lender. They receive a percentage of the amount collected. In order for it to be an incentive, a pay for delete letter may need to offer an amount greater than the collection agency paid for your debt.

Your pay for delete letter should include relevant information such as:

• Dates
• Payment amounts
• Negotiation terms

If the creditor agrees, always make sure to receive their agreement in writing before making any payment.

Not all creditors will accept pay for delete letters. Most banks and mainstream creditors are not open to negotiation, but small utility bills that go to collections might be more receptive to this strategy.

2. Request a goodwill deletion

If you have an otherwise good credit history with an isolated negative item, you might consider writing a goodwill letter to the original creditor. It is a request to remove the negative items from your credit report out of goodwill. Creditors want to help you, especially if you’re a long-term client with a good past relationship.

You’ll want to reference the length of time you’ve had an account with a creditor and mention that, moving forward, you intend to keep your account in good standing. Discuss how your credit history is promising and how your late payment was a one-time error.

Then, clearly state your request for a line item revision on your credit reports as a gesture of goodwill.

3. Dispute the collection item

If you discover any inaccurate, unfair or unsubstantiated items on your credit reports, you are entitled to dispute them with the credit bureaus, creditors or collection agencies. The credit bureau is responsible for investigating the errors.

If the item cannot be verified, you may be able to get it removed from your report (and potentially improve your credit as a result).

Here is how to challenge collection accounts:

• Review your credit reports for errors. You’re entitled to dispute any errors regarding things like dates, names, spelling and balances owed.
• Write to the collection agency to request that they validate the claim. Your letter should state that you want the collection agency to validate that this unpaid debt actually belongs to you. If they can’t, state that you want the account removed from your credit report.
• Know when to get professional help. Disputing collections or any other type of negative item is no easy task. For many consumers, this can be overwhelming. If this is the case for you, it may make sense to seek the guidance of a credit repair firm.

Keep copies of your disputes and don’t forget to state clearly in your letter that you want a response from the collection agency within 30 days.

As we’ve mentioned before, most negative items reported by your creditors can stay on your credit reportsfor up to seven years,according to theFair Credit Reporting Act (FCRA).

Unless you have reason to dispute a debt collection on your report as inaccurate or unverified, it will likely stay on your credit reports for this time frame.

When a collection account is added to your credit reports,it can affect your score significantly. While there is no way to know for sure exactly how your score will be impacted, typically, the higher your score, the more points you might lose.

Collections tell potential lenders that you failed to pay back a debt and that you pose the same risk to them if they decide to lend you money, which can make you seem less creditworthy.

Having a debt in collections doesn’t mean you don’t have rights. You shouldn’t suffer harassment as a result of being unable to pay your bill.

TheFair Debt Collection Practices Act (FDCPA)outlines your rights, including the following:

• A collection agency cannot contact you at workif you have specifically informed them that your employer will not allow you to receive their calls in the workplace.
• They cannot contact youbefore 8 a.m. or after 9 p.m.
• Debt collection agencies are strictly prohibited from deceiving you. For example, it would be illegal for them to claim they are a law enforcement agency in order to scare consumers into paying.

Having a debt in collections is overwhelming for anyone, but you should remember that you still have rights. If a debt collection agency violates these rights, you can report them to the Attorney General’s office in your state or theFederal Trade Commission (FTC).

It’s important to understand when it’s time to get outside help. If you have accounts in collections because of your inability to pay off your debts, you’re dealing with enough stress as it is.

Lexington Law Firm could help you work toaddress questionable negative items listed on your credit reports, especially if you’ve had a debt unfairly or inaccurately sent to collections. By engaging in credit repair, whether on your own or with the help of a trusted credit repair firm, you may be able to get negative items that are affecting your credit history removed from your credit reports.

Vince has considerable expertise in the field of bankruptcy law. He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

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