Working to improve bad credit is a wise use of your time and energy. Yet at the same time, cleaning up damaged credit may feel like an overwhelming process. While many people don’t know where to begin, some start by paying or settling old, negative accounts in an effort to clean up their credit reports.  Unfortunately, taking care of an old credit blemish doesn’t always have the desired results. If you paid off a derogatory account, you may have noticed that it wasn’t removed from your credit reports. You may be wondering, I paid off a negative account but it was not deleted.

When do items have to come off your credit reports?

The Fair Credit Reporting Act, or FCRA, is a federal law that determines the maximum amount of time negative items can remain on your credit reports. The same law also dictates under what circumstances a credit reporting agency or creditor (aka data furnisher) must delete something from your credit reports earlier than the maximum amount of time.

The FCRA dictates the following as it pertains to credit reporting negative items and your rights to challenge such information:

• Most negative items must be deleted from your credit reports after 7 to 10 years.
• You have the right to dispute information on your credit reports.
• A credit reporting agency has 30 to 45 days to investigate your dispute.
• If the information you dispute is found to be inaccurate (or if your dispute is ignored by the data furnisher), the item will be deleted from your credit report.

You’ll notice that there’s no mention above about paid negative accounts being removed. Under the FCRA, paying or settling a derogatory item on your credit report doesn’t change the credit reporting statute of limitations and doesn’t require that it be removed as a matter of law.

Consider collection accounts, for example. According to the FCRA, collection accounts can remain on your credit report for up to seven years from the date of default of the original account.

Paying or settling a collection account doesn’t change the seven-year credit reporting timeline. A zero-balance collection won’t come off your credit report any sooner, nor will it remain on your credit report any longer. The only exception is if you have medical collections that are being paid by an insurance policy. Those must be removed as a matter of policy.

Will paying a negative account help my credit scores?

Payment history is worth 35% of your FICO score points. And, the same category is highly influential to your VantageScore credit scores. So, negative items like charge-offs, collections, and late payments certainly have the potential to cause you to have lower credit scores. And while it’s often a good idea to pay or settle negative accounts, taking this step won’t always benefit your credit scores.

The impact of a paid negative account depends on several factors. First, the type and generation of credit scoring model a lender uses to evaluate your credit report plays a role. Several newer credit scoring models ignore zero balance collection accounts. However, older credit scoring models like the ones used in mortgage lending will still consider zero balance collection accounts, and they will be just as harmful as they were before you paid them.

Additionally, the type of negative account can determine the impact it has on your credit score. For example, if you have credit card account that was past-due by only a few month but never went to collections, bringing the account current again might eventually help your credit scores. But, curing that action won’t erase the late payments from your credit reports. So, while being current again is helpful, your payment probably won’t undo all the damage right away.

Next steps

Deciding to pay or settle negative accounts is always a smart strategy. It ends the collection calls, letters, and lawsuit threats. But, you need to be realistic about the impact of doing so. It probably won’t be enough on its own to fix your credit problems. But it is absolutely a smart first step on your credit improvement journey.