Does Paying Collection Accounts Help or Hurt Your Credit Scores?


When you fall behind on a debt, there are a number of bad things that can happen. Your creditor may charge you a late fee. With a credit card, the issuing bank might close your account. And in some cases, the original creditor may consign the collection efforts for the debt to a third party known as a collection agency. But, does paying collection accounts help or hurt your credit scores?

A collection agency’s function is to try to collect the monies owed from debtors. In order to compel you to pay, a debt collector may add the collection account to your credit reports, which can lead to lower credit scores. If you currently have collections on your credit reports you may wonder, does paying collections help or hurt my credit scores? The answer, as it is commonly with respect to credit scoring, depends on several factors.

How Collection Accounts Impact Your Credit Scores


Anytime negative information like a collection account shows up on your credit reports, there’s a chance it may lower your credit scores. And because collection accounts constitute a derogatory mark by the “payment history” category of scoring metrics, the negative impact on your credit scores could be considerable.

Payment history metrics affect your credit scores more than any other type of information on your credit report. This credit report category accounts for 35% of your FICO® Score, and it’s highly influential to your VantageScore credit scores as well.

Of course, the impact a collection has on your credit scores will be different for you than it is for the next person. Credit scoring models don’t consider any single item in a vacuum. Instead, they evaluate all of the information on your credit reports as a collective dataset.

That being said, a collection account might be more damaging if your credit report is otherwise clean. If your credit report is already filled with negative information (and your credit score is already low as a result), the addition of one more collection account probably won’t trigger as significant of a credit score drop, if any at all.

Will Paying a Collection Help or Hurt Your Credit Score?


Unfortunately, paying a collection isn’t always guaranteed to undo the damage. Collection accounts with zero balances can stay on your credit reports for up to seven years from the date of the first delinquency on the original account. As long as the zero-balance collection remains on your credit reports, there’s a chance it could still lower your scores.

The impact of a paid collection will depend on the credit scoring model the lender is using. Newer versions of popular credit scores—FICO® 9, VantageScore 3.0, and VantageScore 4.0—all ignore collection accounts with zero balances. If a lender uses one of these models to calculate your credit scores, then paying a collection absolutely could benefit you.

Older credit scoring models still consider paid collection accounts in the scoring process. So, if a lender uses a credit score that still considers paid collections, such as the models used for mortgage lending, your scores won’t improve when you take care of the defaulted debt. However, as time passes and the collection ages, it may not damage your credit scores as much as it did in the past.

NOTE: One thing is going to be universally true as it pertains to paying collection accounts. Doing so will never cause you to have a lower credit score.

Should You Pay?


If you owe a debt, you should pay it. That’s the right thing to do and you’ll always benefit, in one way or the other, by paying your obligations. Conversely, not paying what you owe can lead to any number of problems.

When you default on a debt, you may face stressful collection calls and letters. There’s also a chance the collection agency will file a lawsuit against you if you continue to ignore the debt. If the debt collector sues you and you still choose to ignore them, they will end up with a default judgment. Default judgments can quickly become wage garnishment, which your employer cannot ignore. Point being, you can ignore collectors for only so long.

If a collection agency contacts you about a legitimate debt, you should strongly consider paying or settling it. Sometimes if you respond quickly enough, you might be able to resolve the issue before the debt collector adds a new negative mark to your credit report. Either way, you’ll get the collector out of your life so you can focus on rebuilding your credit.

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