How Much Does Your Credit Score Go Up When You Pay Off a Bad Credit Card Account?

Paying a delinquent credit card could boost your credit score or eat up precious resources that could go to paying more immediate bills and not help your score at all. Once the account goes to collections, there is little you can do for your credit score. Anything before this situation and paying may help you out.

How Late Is It?

Credit card companies must write down bad accounts as a loss if you do not pay for six months. If this six-month limit has yet to pass, then paying it off boosts your score -- now and in the next few months. First, you eliminate credit card debt and raise your credit utilization ratio, a proportion of credit limit used to your available limit. You also avoid a more serious charge: a charge-off or collections account. Also, you can build positive payment history on the card again after becoming current.

Effect of a Charge Off or Collections

Once an account turns into a charge-off or is sent to a collections agency, paying it off has almost no impact on your score. Your score might improve a little by paying a charge-off, because you eliminate some debt from your credit report. However, the negative account stays on your report for seven years and likely negates any gains, according to Bankrate.

Considerations

Some of your lenders may look at your credit report and consider more than just your FICO score calculation. If a lender sees a paid charge-off or collections account, he may develop a higher opinion of your character because you paid off an old debt instead of ignoring it. Stricter creditors may even require all applicants to pay old bad accounts.

Tip

Settling on the credit card account for less than the amount owed hurts your credit score, sometimes by as much as 125 points, according to Bankrate. This happens because the creditor or debt collector will list the account as "paid, but settled." If you already have poor credit, it might be worth settling for pennies on the deal for a smaller hit to your credit score, because lowers scores take a lesser beating. You might be able to get the collection agency to delete the account for payment, but this rarely happens and usually only with smaller lenders. If you can get an account deleted, try to do so with the original creditor, because it removes a charge-off and a collections account, while a debt collector can remove only the collections account.