Will My Credit Score Increase if I Pay a Collection?

Your credit score ranges from 350 to 850 and helps lenders and creditors alike determine how likely you are to pay off your debts on time. The higher your credit score is, the lower interest rates you can qualify for, saving you money on your credit card bills and loan payments.

Facts

Collection accounts appear on your credit report when you stop making payments to a creditor who then sells or transfers the debt to a collection agency. Collection agencies often report debtors to the credit bureaus in an effort to elicit payment on defaulted accounts. Collection accounts over $100 have a negative impact on your credit scores and hurt your chances of obtaining new credit and loans at reasonable rates.

Significance

Although paying off collection accounts is admirable, doing so does not increase your credit score. The Fair Credit Reporting Act, however, requires all companies that furnish information to the credit bureaus to maintain accurate reporting records. Thus, the collection agency must update the collection account's status on your credit report to reflect that it was paid off. Lenders reviewing your credit files will see that you paid off the outstanding debts, even if your credit score remains unaffected.

Time Frame

Both paid and unpaid collection accounts can only remain a part of your credit history for seven years from the date your original debt was classified as 180 days past due. Making a partial or full payment on the debt does not alter its reporting period. If a collection account remains on your credit report for longer than federal law allows, you have the right to dispute the account with the credit bureaus in order to have it removed.

Considerations

While paying off collection debts doesn't increase your credit score, having the collection agency's trade line removed from your credit report in its entirety will have a positive effect on your credit rating. Some collection agencies will agree to delete their trade lines in exchange for payment of the debt. If a collection agency agrees to do this, get the agreement in writing before paying off the debt to ensure that the company upholds its end of the bargain.

Features

If a collection agency won't agree to delete the collection account from your credit record in exchange for payment, take solace in the fact that the older an entry is, the less impact it has on your credit score. According to the Fair Isaac Corporation, the company responsible for calculating FICO credit scores, newer entries carry greater weight in the scoring process than older ones. Thus, whether you pay it off or whether you don't, the collection account will impact your credit score less and less until the credit bureaus remove it from your credit history.