If I Pay or Settle a Collection Will it Improve My Credit Scores? A New Answer To An Old Question!

A collection account results from an unpaid bill that is usually past due 150 to 180 days (5 to 6 months). When the creditor determines that the account is uncollectable, they usually charge-off the account.  At this point the creditor has options: they can do nothing else, hire a collection agency, or sell the debt to a collection agency. Here’s the down low on collections.

Do you have a collection account on your credit report? Click here to see your updated credit report and score.


If the account is turned over or sold to a collection agency, your credit report will likely contain two accounts related to this: 1. the original account that was written off and 2. the collection account reported by the collection agency. Collections and charge-offs are considered severe delinquencies and can have a major impact on your credit score.

Old charge offs

The longer the account has been charged off and has had no activity, the less it impacts your score.  Anything that is less than 12 months has the most impact on your credit score and the impact reduces after that unless you keep adding new collections and charge offs to your credit reports. If you pay a collection it will be updated to show paid.  If you settle a collection it will be updated to show settled. Either way, the account now has a $0 balance.

In the past simply updating a collection to show a $0 wasn’t much help because the incident still could lower your credit scores. I don’t want to discourage you from paying your debts; you still have an obligation to pay the debts you owe.  I just want you to be aware of how credit scores look at them.

The Good News

Vantage 3.0 ignores settled or paid collections, so these have no impact on your VantageScore. So I can finally answer “Yes” to the question,”Does paying a collection improve your credit scores?”  Until VantageScore 3.0 the answer has always been either “no” or “it’s doubtful.”

FICO 08 ignores collections under $100, but anything over that amount can impact your FICO score. Older FICO versions treat the existence of any collection as negative, which can also have a significant impact on your FICO score.

To avoid an account going to collections, try to pay your accounts on time. If you can’t, you should contact the creditor to work out a payment plan.  Otherwise, the account could be sent or sold to a collection agency, which can have a major impact on your score.

Collections are not with you forever.  They are removed from your credit report seven years from the time it became 180 days past due on the original account or 7.5 years from the date it first became 30 days late on the original account.

Do you have a collection account on your credit report? Click here to see your updated credit report and score.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

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