Does Paying Back Past Due Amounts Improve a Credit Score?

Past-due amounts on bills lower your credit score significantly, since the MyFICO scoring company advises that 35 percent of your score comes from your payment history. You cannot wipe out past-due records simply by catching up your bills, but eliminating delinquencies improves your score if you continue to make on-time payments.

Benefits

MyFICO cites catching up your past-due accounts as one of the most important ways to help your credit score. You rack up a long string of delinquencies when you carry a past-due balance on credit cards or other accounts. Your Experian, Equifax and TransUnion credit reports list each late account and the number of days your payment is past due. Catching up your bills does not erase the past bad entries, but it puts you in a position to pull your score back up by building up a current and future on-time payment record.

Charge-Offs

Credit card companies and other lenders do not let you keep your account open indefinitely if you stop paying or fall behind by several months. MSN Money writer Liz Pulliam Weston explains that creditors try to work out bills for about six months, after which they charge off the accounts as bad debt. You still owe the money, but the lender gets a tax benefit by charging off your bill. This activity goes on your credit reports and lowers your credit score, but you can still arrange payment with the creditor. Ask for removal of the charge-off if you reach a settlement, rather than just "paid" or "settled" status, or remove its negative influence on your score.

Collection Accounts

Some creditors sell their past-due accounts to collection agencies after charging off the bills. Debt collectors then add their own entry to your credit reports and pursue you for payment of the amount due. They can also add interest and fees if allowed by your original contract, according to the California Attorney General's office. Collectors often settle for a discounted amount because they pay less than face value for accounts. Make sure removal from your credit reports is part of any payment agreement. Your credit score increases somewhat when the collection account is gone, but the original charge-off entry still hurts it.

Considerations

Your credit reports might show delinquent accounts even if you are not behind on any of your bills. Dayana Yochim of the Motley Fool website explains that eight out of every 10 credit reports may have mistakes, and the most common errors involve misreported delinquencies. You can review your credit reports for free every year through AnnualCreditReport.com and dispute past-due entries on accounts that are really up to date. Notify the credit bureaus through their online forms, and they will conduct investigations and fix the data, which brings up your score.