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Advice on Paying off Collection Accounts & Credit Score - The Bills.com Blog
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Advice on Paying off Collection Accounts & Credit Score
Question: I am trying to fix my credit. I have several accounts that have been sent to a collection company. If I pay off these accounts will it improve my credit score? Will they stay on my report as a collection account, but show that they were paid? Will they stay on my report for 7 years from the date that the account was sent tothe collection agency, or from the date they were paid? Thanks!
Answer: When considering whether to pay off a collection account or not in regards to improving your credit score, you must consider several factors. The first is to look at the age of the debt. The older the date of the debt, the less impact it has on your credit score. In the past, if you paid it off, it would renew the date as recent activity and would actually create a negative impact on your credit rating. With time, your credit score would improve as a result of paying off the debt. But with the new scoring system by Fair Isaac and Company, paying off old debt does not hurt your credit score because the scoring system distinguishes between new payments and new delinquencies. You can read more about
credit score at our credit score information page .
Your credit report will take approximately two months to show that the account was paid off. The negative collection activity can stay on your credit report for up to 7 1/2 years from when you stopped paying on the account.
Lenders do look at factors other than just the FICO score. Many lenders view paying off old debt as a sign of goodwill and credit worthiness by the borrower. Therefore, do not be overly focused on credit score because the lender will look beyond the score to see patterns of payments and commitment to financial obligations. Doing the right thing in the way of paying off an old debt goes a long way with many lenders in considering whether to extend new debt.
Here are some links that will help you get more information about credit repair and credit scores:
FTC.gov - Your Rights: Credit Reporting
FTC.gov - Credit Reports & Scoring
MyFICO.com - Free Credit Education Booklets Available for Download
If you would like more information or would like to hire the services of a credit repair professional, please visit our credit resource page . I hope the information provided helps you Find. Learn. Save.
Best
Bill
www.bills.com/blog
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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
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