How Much Will Paying Collections on My Credit Report Raise My Credit Score?

The information creditors report about you to the credit bureaus determines your credit score. Responsible financial behavior benefits you by giving you a high credit score. Individuals with high credit scores qualify for the best interest rates. Trade lines on your credit report from collection agencies serve as evidence of unpaid debt and lower your credit score. Unfortunately, paying these debts only improves your credit under certain circumstances.

Collections

In most cases, paying off outstanding debt improves your credit score. Collection accounts are the exception to this rule. Credit scoring models view collections on your credit report negatively regardless of whether you did the responsible thing and paid the debt. The very fact that you neglected a debt long enough for your creditor to send it to a collection agency counts against you. Paying the account does not help your score.

Payment Benefits

Like any other creditor, collection agencies are bound by the Fair Credit Reporting Act to provide only accurate records to the credit bureaus. Thus, when you pay the debt in full the company must note that fact on your credit report. Even though the very fact that a collection trade line is present on your credit report hurts your score, lenders can see that you made an effort to pay off the debt and will take that into consideration when evaluating whether or not your damaged credit makes you a lending risk.

Deletion

The only way that paying a collection will improve your credit score is if the company contacts the credit bureau and deletes its trade line from your report after receiving your payment. Not all collection agencies are willing to remove their trade lines after receiving payment, but each company's policy on deletions differ so it never hurts to ask. If the company agrees to a deletion in exchange for your payment, ask for the agreement in writing before paying the debt. Once the collection disappears from your credit history, your credit score will improve.

Considerations

Collections on your credit report do the most damage when they are recent. Your credit score places less emphasis on older items because they do not reflect your current financial behavior as accurately as more recent entries. Paying an old collection does not update its status -- making it appear as recent activity on your credit report and lowering your credit score. Regardless of whether you pay the collection or leave it alone, federal law mandates that the credit bureaus delete the trade line after seven years. Once the collection disappears from your credit record, your credit score will improve.