Paying off collections could increase scores from the latest credit scoring models, but if your lender uses an older version, your score might not change. Regardless of whether it will raise your score quickly, paying off collection accounts is usually a good idea.
Generally, a more recent collection account will do more damage to your FICO score. Newer scoring models ignore paid collections. But lenders may not, and paying could improve your odds of approval when you want a mortgage or an auto loan.
Your credit score may not increase at all when you pay off collections. However, if your debt is reported using a newer credit scoring model, your score may increase by however many points were impacted by the collections debt. It would also depend on the time passed since getting the negative mark.
Summary: Ultimately, it's better to pay off a debt in full than settle. This will look better on your credit report and help you avoid a lawsuit. If you can't afford to pay off your debt fully, debt settlement is still a good option.
It may be good not to pay a collection agency in the following circumstances: You don't have any income or assets, and you don't plan to change that. You don't owe that debt. Your plan is to settle the debt for less than what you originally owed.
NOTE: Paying a debt collection account doesn't remove it!
The balance will show as $0 and the status would be listed as paid in full. However, the collection account itself will still remain. If you settle an account for less than the full amount owed, the balance should also be reduced to zero.
Collections accounts generally stick to your credit reports for seven years from the point the account first went delinquent, even if the account has been paid in full. But you may want them off sooner than that because unpaid collections can make you look bad to potential creditors.
According to most credit scoring models, paying off a collection account doesn't stop it from having an effect on your credit. You'll usually have to wait until they reach the end of their seven-year reporting window. The good news is that the older the information is, the less impact it should have on your credit.
Your original creditor may be most willing to take your debt back if you have already worked out a plan with your debt collector and begun repaying what you owe. So, if you want to bypass a debt collector, contact your original creditor's customer service department and request a payment plan.
If you're able to do so, pay the original creditor before your debt goes to collections. Having a debt sent to collections will damage your credit score and may limit your options for repayment. In most cases, the original creditor will offer better repayment options than a debt collector will.
It is theoretically possible to get a 700 credit score with a collection account on your credit report. However, it is not common with traditional scoring models. A derogatory mark like a collection account on your credit report can make it incredibly difficult to obtain a good credit score like 700 or over.
You cannot remove collections from your credit report without paying if the information is accurate, but a collection account will fall off your credit report after 7 years whether you pay the balance or not.
Let's Summarize... If you're facing debt collection, it's important to understand how the process works and what options you have. If you ignore a debt in collections, you can be sued and have your bank account or wages garnished or may even lose property like your home. You'll also hurt your credit score.
If you notify the debt collector in writing that you dispute the debt within 30 days of receiving a validation notice, the debt collector must stop trying to collect the debt until they've provided you with verification in response to your dispute.
If the collection agency bought the debt from the creditor (rather than the creditor just assigning the debt to the agency for collection), the agency owns the debt. If you negotiate with and make payments to the creditor, the collector may refuse to credit you for those payments.
Payment method.
The best method of payment will prevent a debt collector from having access to your financial accounts. For that reason, a money order is your best option. Be sure to keep a carbon copy and receipt.
All told, it's really not a great thing to let your debt get to the point where it's gone into collections. If you're able to reach out to your original creditor and work out a payment plan first, you'll generally be in a better position.
Paying an old collection will likely lower your score. After about two years, the scoring impact is minimal, assuming the creditor has not been attempting continually to collect. If you pay them off now, the status will change to “Paid Collection” (still bad)—with a current date.
Although the debt won't be factored into your credit score after seven years, there are still consequences. When you stop paying your debt, the creditor will start charging late fees and interest will continue to accumulate, increasing the balance you owe.
Generally speaking, negative information such as late or missed payments, accounts that have been sent to collection agencies, accounts not being paid as agreed, or bankruptcies stays on credit reports for approximately seven years.
A 609 dispute letter is actually not a dispute but is simply a way of requesting that the credit bureaus provide you with certain documentation that substantiates the authenticity of the bureaus' reporting.
Negative payment information, such as collections, late payments and Chapter 13 bankruptcy, will remain on your credit report for seven years, while Chapter 7 bankruptcies remain for up to 10 years.