Does Paying Off Collections Improve My Score?
November 15, 2019
Contrary to what many consumers think, paying off an account that’s gone to collections will not improve your credit score. Negative marks can remain on your credit reports for seven years, and your score may not improve until the listing is removed.
Our guide will explain why paying off collections alone doesn't improve your score, and we’ll offer tips on how to potentially remove old debt from your credit report.
How Does Paying Off a Collection Account Affect Your Credit Report?
If you pay an account in collections in full, its impact doesn’t go away immediately. You’ll have to wait until it reaches the statute of limitations before it’s removed from your credit report, which is normally around seven years. The good news is that the older the information, the less impact it has on your credit score.
While paying off collections may not improve your credit score, there are still a few ways it can benefit you:
- Avoid a debt collection lawsuit for unpaid medical or credit card bills.
- Dodge interest fees from debt collectors. Debt collectors constantly buy and sell accounts and can continue to charge you interest and fees on purchased accounts.
- It will show up on your credit report as “paid in full” or “settled.” This could positively influence lenders who might look beyond your score to your credit history. A person who pays back a severely past due account shows more financial responsibility than someone who never paid it.
- Eventually benefit from the new FICO® Score model. FICO 9 is rolling out very slowly, but eventually it will be used by most lenders. This model gives less weight to medical bills and ignores paid accounts in collections entirely.
Three Ways to Remove Collections Accounts from Your Credit Report
The first step you need to take is to order credit reports from the three major bureaus: Experian, TransUnion and Equifax. Collections may be reported to only one or two bureaus. There are a few different ways you can try to remove collections from your account, some with more success than others. We review these options below.
Bear in mind that the results of these methods vary and not every consumer will have the same outcome. However, it’s always worth exploring and your credit score may improve as a result.
1. ‘Pay for Delete’ Letter
Collection agencies and lenders may remove collection accounts if you negotiate with them. One tool is the pay for delete letter, which is a written request to have negative marks removed in exchange for your payment.
A collection agency is contracted to collect payment on a debt for the original creditor or lender. They receive a percentage of the amount collected. This means that in order for it to be an incentive, a pay for delete letter must offer an amount greater than the collection agency paid for your debt.
Your Pay for Delete letter should include relevant information such as:
- Payment amounts
- Negotiation terms
Always make sure to receive the creditor’s agreement in writing first. If you want to learn more or are looking for a letter template to use, read about how to use a pay for delete letter as a negotiation tool.
Not all creditors will accept Pay for Delete letters. Most banks and mainstream creditors are not open to negotiation, but small utility bills that go to collection might be more receptive to this strategy.
2. Goodwill Deletions
If you have an otherwise good credit history with an isolated negative item, you might consider writing a goodwill letter to the original creditor. It is a request to remove the negative items from your credit report out of goodwill. Creditors want to help you, especially if you’re a long-term client with a good past relationship.
You’ll want to reference the length of time you’ve had an account with a creditor and mention that, moving forward, you intend to keep your account in good standing. Discuss how your credit history is promising and how your late payment was a one-time error.
Then, clearly state your request for a line item revision on your credit reports as a gesture of goodwill.
3. Disputing a Collection
If you discover any inaccurate, unfair or unsubstantiated items on your credit reports, you are entitled to dispute them with the credit bureaus, creditors or collection agencies. The credit bureau is responsible for investigating the errors.
If the account cannot be verified, you may be able to get it removed from your report (and improve your credit as a result).
Here is how to dispute collections accounts:
- Review your credit report for errors. You’re entitled to dispute any errors including dates, names, spelling and balances owed.
- Write to the collection agency to request that they validate the claim. Your letter should state that you want the collection agency to validate that this unpaid debt actually belongs to you. If they can’t, state that you want the account removed from your credit report.
- Know when to call a professional. Disputing collections or any other type of negative item is no easy task. For many consumers, this can be overwhelming. If this is the case for you, it may make sense to seek the guidance of a professional credit repair firm.
Keep copies of your disputes and don’t forget to state clearly in your letter that you want a response from the collection agency within 30 days.
How Long Do Collections Accounts Normally Stay on Your Report?
Negative items reported by your creditors can stay on your credit report for up to seven and a half years, according to the Fair Credit Reporting Act (FCRA).
Unless you have reason to dispute a debt collection on your report as inaccurate or unverified, it will likely stay on your credit reports for the seven-and-a-half-year timeframe.
How Will Collections Accounts Affect Your Credit?
When a collection is added to your credit report, it can affect your score by as much as 110 points and take your credit score from fair to poor. The higher your score, the more points you can lose.
Collections tell potential lenders that you failed to pay back a debt and that you pose the same risk to them if they decide to lend you money.
Know Your Rights with Debt in Collections
Having a debt in collections doesn't mean you don't have rights. You shouldn't suffer harassment as a result of being unable to pay your bill.
The Fair Debt Collection Practices Act (FDCPA) outlines your rights, including the following:
- A collection agency cannot contact you at work if you have specifically informed them that your employer will not allow you to receive their calls in the workplace.
- They cannot contact you before 8 a.m. or after 9 p.m.
- Debt collection agencies are strictly prohibited from deceiving you. For example, it would be illegal for them to claim they are a law enforcement agency in order to scare consumers into paying.
Having a debt in collections is overwhelming for anyone, but you should remember that you still have rights. If a debt collection agency violates these rights, you can report them to the Attorney General’s office in your state or the Federal Trade Commission (FTC).
Credit Repair and Collections Accounts
It’s important to understand when it’s time to call a professional. If you have accounts in collections because of your inability to pay off your debts, you’re dealing with enough stress as it is.
Lexington Law Firm can help you work to remove questionable negative items listed on your credit report, especially if you’ve had a debt unfairly or inaccurately sent to collections. By engaging in credit repair, whether on your own or with the help of a trusted credit repair company, you may be able to remove negative items from your report that are affecting your credit history.
Call For A Free Credit Report Consultation
The experts at Lexington Law can help you understand your credit profile and see if you have inaccurate and unverified negative items on your credit report.Call 1-855-255-0139