Does Paying Collections Improve Credit Scores?

The Short Answer is "No"

No, paying collections does not improve your credit score, at least not in the short term. The term collection, as used in this context, basically refers to unpaid debts that have been sent to professional debt collectors by your creditors. Such debts appear on your credit report as "collections" and are seen as a bad reflection on your creditworthiness, whether you repay them or not.

How You Get a Collections Account

There are two ways that your debt can end up in collections:

Your creditor may send your debt to a collections company to collect the debt for them. In this case, your creditor receives the money you pay and then pays the collections company a percentage for its efforts.

Your creditor may also simply write the debt off and sell it to a third-party debt buyer for pennies on the dollar. This third-party now owns the debt and collects the money. In this case, your original lender never receives the money that you pay to this collections company.

Whatever way the debt ended up with the collections firm, the occurrence of such "collections" on your credit report is bound to injure your credit score considerably, and you could find yourself increasingly being denied credit or being treated as a "high-risk" debtor. The latter will subject you to higher fees and interest rates.

How to Improve Your Credit Score When You Have Collections

Legally speaking, you have the opportunity to dispute the collections on your credit report if the debt is not yours or if it is not being reported correctly. If it is your debt and is being reported correctly, you may want to ask the original lender to consider pulling the debt from the collector with the agreement that you will pay the full balance and they will mark your account "closed by credit borrower."

If your debt has already been sold to a third-party debt buyer, you may want to offer to pay a portion of the total balance (they will still make a profit) in exchange for taking their collection account off your credit report. The older your debt is, the more success you will have with this method.