Pay Debts to Improve Credit Score

Pay Debts to Improve Credit Score

My question relates to how to best pay of my debts to produce the most increase of my credit score.

My question relates to how to best pay of my debts to produce the most increase of my credit score. I have the following debts: $1297 - Past Credit Card in collections $4850 - In collections -my ex-wife moved from the apartment before the end of the rental term. The lease was in my name and The apartment did not contact me until a year after she had left and the matter had gone to collections. I had moved to another state. I expect to start having extra income to payments by May 2009. Questions. 1. Should I wait until I get the funds to pay of each debt in full, negotiate with the collection agency to pay off the full amount and get a certificate of deletion? 2. Should I start to make at least the minimum payments, then at some point negotiate with the collection agency to pay off the full amount and get a certificate of deletion? 3. Would getting a secured credit card that reports to the three credit reporting agencies and making regular payments help to start improving my credit score? 4. Or any other suggestions?

  • Review your credit report regularly and dispute any inaccurate information you find.
  • Consider negotiating reduced pay-offs with your creditors, if paying off your debt is more important that improving your credit score.

Generally speaking, paying off delinquent accounts, such as the two you mention in your question, would have a positive influence on your overall credit score. However, credit scoring models are much too complex for me to tell you specifically how much your credit score will improve or when you will see the results.

The first step I recommend to most consumers who work to increase their credit scores is to dispute any inaccurate negative information. Credit reports are notoriously inaccurate, with consumers frequently finding listings of derogatory accounts that never belonged to them or that were paid off years ago. If you find any inaccurate listings, you should dispute them with the appropriate credit bureau. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.

Clearing up inaccurate derogatory accounts may significantly improve your credit score, depending on the number of inaccurate listings you find. You can obtain a free copy of your credit report from each of the major three U.S. credit reporting agencies by visiting

Next, try to pay off any derogatory items that legitimately belong to you, including the two accounts you mention. While paying off these accounts will not make them fall of your report, it should improve your credit by reducing the amount of delinquent debt reporting to the bureaus and preventing the accounts from continuing to be reported as delinquent. If your only goal is to improve your credit score, the best thing to do would likely be to pay these debts off in full as soon as possible. Ideally, you would pay these debts off in a lump sum; however, if you cannot afford to do so, the creditors or collection agencies should be willing to establish an affordable repayment plan. I recommend that you pay as much as possible each month toward the balance of these debts, as the sooner you pay them off, the sooner the negative influence they are currently having on your credit score will begin to diminish.

Saving money to settle with the creditors is certainly a viable option. Frequently, creditors will settle delinquent accounts for 50% of the balance owed, or sometimes much less; as you can imagine, such a settlement could save you a significant amount of money. However, most creditors will require that settlement offers be paid in no more than a handful of payments; many require that they be paid in a single lump sum. From your question, it sounds like you do not have immediate access to the funds necessary to settle these accounts. You could begin saving money toward a possible settlement; however, the more time that passes without these accounts being paid, the more damage they are likely causing to your credit score. You will need to weigh the potential savings of settling the accounts against the potential of additional reduction of your credit rating. Because I do not know what other items you have counterbalancing the negative impact of these derogatory items, or the other aspects of your credit profile, I cannot tell you how much waiting to settle will lower your credit score. However, I can tell you that, given of the size of the accounts, and the fact that they are already delinquent, waiting a few months to settle the accounts will probably not be detrimental to your credit. To read more about how to negotiate with your creditors, I invite you to visit the Debt Negotiation page.

Once you deal with you derogatory accounts, you should begin paying down any other accounts you may owe to reduce your debt to available credit ratio. You can safely carry some debt, but carrying too much debt month to month demonstrates that you are financially strapped, and should not be extended more credit. Ideally, your ratio of debt to available credit should be no more than 33%. In addition, if you do not already have a long, positive credit history, you should begin to build one. You can start by opening a few small credit card accounts, making charges on them, and paying off most, if not all, of the balances each month. By doing this, you will show yourself to be a responsible user of credit, and your credit score should improve with each month you continue to show a positive payment history. If you find that you cannot obtain a traditional credit card because of credit problems, a secured credit card, in which you deposit cash in an account as collateral for the credit line, can help build a positive credit history. Again, I cannot tell you how much or how quickly opening a new credit account will improve your credit rating, but building new positive trade lines is the key to improving your credit score over the long term.

To learn more about credit and strategies to improve your credit score, visit the Credit Solutions and Resources page.

I hope the information I provided helps you Find. Learn. Save.




KKasey G., Jan, 2013
How do you know who to call to pay-off an outstanding debt appearing on your credit report? I have one I am trying to pay off. Tried calling the number listed on my credit report and received a disconnected number.
BBill Admin, Feb, 2013
Let us assume the collection agent is a mom-and-pop operation and ceased operations. If so, your best course of action is to file a dispute with the credit reporting agencies reporting the delinquency. Why? When a consumer files a dispute with one of the consumer credit reporting agencies, the agency will send a message to the collection agent identified as the owner of the collection account to learn if the information is accurate. Here, if the collection agent is out of business, there will be no response. Because there will be no response, the agency must remove the derogatory.

It is possible that at some point in the future, some other collection agent will buy the assets (the collection accounts) of the defunct collection agent and the derogatory may reappear on your credit report.

Of course, a simpler explanation may be that a consumer credit reporting agency employee slipped a digit when typing the telephone number into its database. Have you tried entering the collection agent's name into a search engine? If so, what did you find?
OOliver, Aug, 2010
Great article, filled with the truth. Those of us who learn to live within our means will be able to bear through today's economic challenges. Debit card is the only plastic I carry now.
BBill, Mar, 2010
The algorithm Fair Isaac & Co. use to calculate credit scores proprietary and therefore it is impossible to say with certainty how much a certain activity will increase or decrease each individual's credit score. The "problem" with paying a full balance is that although the account will be shown as paid in full, it will be paid late. That is not to say you should not pay an account in full. However, if the creditor is offering you a settlement, there is little evidence I have seen that settling a debt for less that full balance results in a lower credit score than settling the debt.
So, I want to purchase a home in 4-6 months. Is it best for me to settle or pay them off in full. I need to raise my score. What will be the best option for me?
BBill Admin, Feb, 2011
If your goal is to raise your credit score in 4-6 months, I recommend paying off all your debts instead of trying to settle them, if you can afford to pay them. That way, you can start the process of building your score sooner. It takes time to negotiate settlements. If you were to try the settlement route, it could take so long to finalize the negotiation that you would delay the rebuilding of your score.

Keep in mind that there can be a short-term lowering of your score, when you pay off an old account that has been sitting in collections in a dormant status. The reason it can lower your score in the short term is that accounts with recent activity get greater weight in determining your credit score than older accounts. Once you pay on an account that has been dormant, your recent activity will increase that account's weight on your score, lowering it.

Please read about the Rapid Re-score option as a way to quickly raise your credit score. Also, please read the general piece about understanding your credit scoreand the article about how to improve your credit score. Please post any follow-up questions on the appropriate page.
ssarah lenz, Mar, 2010
what is the approximate credit score difference if you settle a debt vs paying off in full a debt with all interest charges? Does settling a debt still have a derogatory connotation, or should you make pymts until you reach the full amount. Thank you for your advice
BBill, Oct, 2009
You have several options when it comes to dealing with your delinquent accounts. I recently wrote about the path you can take in my blog What Are My Debt Consolidation Options?.