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Why Did My Score Drop After Paying A Collection Account?

Why did my credit score drop when I paid a collection account
Betsalel Cohen
UpdatedMay 29, 2023
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    2 min read
Why did my score drop after paying a collection account?

I paid all of my debts in collections (except a handful of hospital bills). BAD NEWS - My score dropped after paying off a debt I owed to Sprint. I thought paying off the bills that were in collections would help my score, not hurt it. What did I turn wrong? Now, my score isn't high enough to apply for any "new credit."

Congratulations on paying off your collection accounts. While it is frustrating that your credit score dropped, over time, as you make timely payments, you will see an improvement in your credit score.

The good news is that your credit score should improve over time due to paying off the collection account.

Reasons for a drop in credit score after paying off a collection account

It is not uncommon for credit scores to drop after paying off a collection account. There are several factors as to why your credit score dropped. 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 create a negative impact on your credit rating.

There are many types of credit score models. With the new scoring system by Fair Isaac and Company, paying off old debt does not hurt your credit score. It distinguishes between new payments and new delinquencies versus old collection accounts.

Paying a collection account helps improve your credit score

You will have to be patient with improving your credit score because the process takes time. There are different ways to deal with a collection agency. Once you have established that you are dealing with a reputable company and the debt is yours, you can reach a payment plan or a negotiated settlement. Your credit report will take approximately two months to show that the account was paid off. The collection activity can stay on your credit report for up to 7 1/2 years from when you stopped paying on the account.

In rare instances, collection agencies that buy debt will agree to delete the tradeline from your credit report once you pay the negotiated amount in full. Once the bureau deletes the tradeline, your credit score should slightly increase.

Paying a collection account helps improve your credit score

You shouldn't be worried about a drop in your credit score after paying off a collection account. The most important thing to consider is how to move forward. While I cannot tell you when your credit score will improve, make sure you make timely monthly payments. The longer you make payments, the more positive influence your accounts will have on your credit history.

I encourage you to regularly obtain copies of your credit reports from the three major credit bureaus (Equifax, TransUnion, and Experian). Verify that all listings appearing on your report are accurate. If you find any inaccurate credit listings, you should dispute the item with the credit bureau reporting the information.

I would suggest that you worry less about your credit score and more about making payments on time. Any small drop in your credit score due to paying off a collection account is small compared to the past damage of a delinquent account.

I hope this information helps you Find. Learn & Save.



Dealing with debt

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2022 was $16.91 trillion. Auto loan debt was $1.55 trillion and credit card was $0.99 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Collection and delinquency rates vary by state. For example, in District of Columbia, 20% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 8%.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.

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