Will Paying Off A Collection Account Improve My Credit?

Question: Does the debt from the collections agency get removed or just show zero balance after it’s paid? If it just shows zero balance will that be enough to boost credit score?

Answer from DebtCollectionAnswers.com: There is a lot of confusion surrounding collection accounts and credit reports. Once you’ve paid or settled a collection account, the balance should be updated to zero. How quickly that will happen depends on when the collection agency provides the updated information to the credit bureaus. If they don’t, you can dispute the collection account directly with the credit reporting agencies.

However, don’t expect your credit scores to improve significantly once you’ve resolved the debt. Under the majority of credit scoring models used today, collection accounts are considered negative, whether paid or unpaid. That is changing, however. VantageScore 3, the most recent version of a credit scoring model used by some lenders, bypasses collection accounts where the balance is zero. And FICO 9, the newest version of the FICO score, will do the same. However, it could be a significant amount of time before FICO 9 is widely adopted by lenders.

Still, taking care of one of these accounts may benefit your credit overall. Since the account has been paid, it shouldn’t be sold to another collection agency which could result in another negative item on your reports. And you won’t be sued, so there is no longer the risk of a judgment on your credit reports. And some lenders want to see these accounts resolved before they will give you a mortgage or car loan, for example.

The other part of your question is, when will it this come off your reports? These accounts may be reported for seven years plus 180 days from the date you first fell behind with the original creditor such as the credit card issuer or medical provider. Once that time frame is up, the account may no longer be reported, whether or not you paid it off.

If it remains on your reports for a while longer, don’t be completely discouraged. As negative information “ages,” (becomes older) it carries less weight especially if you have open accounts that you are paying on time. In other words, you can still rebuild your credit even with this on your reports.

You’ll find more information about dealing with collection accounts on your credit reports in the free ebook Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.

This article by Mary Reed and Gerri Detweiler first appeared on DebtCollectionAnswers.com and was distributed by the Personal Finance Syndication Network.


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