Does a Paid Collection Hurt Your Credit?

Unpaid debts do not go away even if your creditors write them off. Banks and other lenders often write off accounts that go unpaid for 180 days, because of the tax benefit. Lenders often sell accounts to collection agencies who can hound you for repayment and sometimes sue you, as well as adding a negative item to your credit report.

Effects

A collection account is very hurtful to your credit, even if you pay it off, because lenders still see that you had an old bill placed with a collection agency, which means you defaulted on the original account. Paying off the account does not automatically change a collection account's damaging effect on your credit score.

Benefits

Paying off a collection account has some benefits, even if it does not improve your credit rating. Taking care of the bill stops annoying collection calls and letters. Payment prevents the possibility of a lawsuit and keeps the debt from being resold to a new collection agency.

Alternative

Collection agencies sometimes agree to remove the account from your credit reports if you pay it off. First off, try offering less than what you owe. Debt collectors purchase charged-off accounts for much less than their face value so they still make money with a discounted settlement. Get a signed agreement showing that the collector agrees to remove the account in exchange for your payment. Your credit will still suffer, though, because the original charged-off account remains on your credit report.

Warning

Beware of paying debt collectors who hound you about old accounts on which your state's statute of limitations has expired. They can seek repayment but cannot sue you for the debt, and they cannot call you if you tell them to stop in writing. These bills are called "zombie debts" because they are technically "dead" even though scavenger agencies tries to get money out of them. Making any payment, or even promising to do so, is dangerous because it restarts the clock on the debt, opening you up to several more years of collection attempts and potential lawsuits.

Time Frame

Collection accounts, whether paid or unpaid, do not stay on your credit reports forever. The credit bureaus eliminate them from your records seven years from the date you stopped paying, according to the Federal Trade Commission website. Removed entries no longer hurt your credit because they are not visible to lenders or credit scorers.