The short answer is: it depends. Paying a debt collector can have both positive and negative effects on your credit score, depending on the specific circumstances. Here’s a breakdown of what you need to know:
The Good News:
- Paying off a collection account can improve your credit score. This is because it removes the negative mark from your credit report and shows that you’re taking responsibility for your debt.
- The newer credit scoring models (FICO 9 and VantageScore 4.0) give less weight to collection accounts than older models. This means that paying off a collection account is likely to have a bigger impact on your score if your lender uses an older model.
- Paying off a collection account can help you avoid further negative consequences. If you don’t pay off a collection account, the debt collector may sue you or garnish your wages. This can damage your credit score even further and make it difficult to get loans or other credit in the future.
The Bad News:
- Paying off a collection account can actually lower your credit score in the short term. This is because it adds a new “paid collection” entry to your credit report. However, this negative impact is usually temporary and will be outweighed by the positive impact of removing the original collection account.
- Paying off a collection account doesn’t guarantee that your credit score will improve. If you have other negative marks on your credit report, such as late payments or high credit card balances, paying off a collection account may not be enough to significantly improve your score.
What Should You Do?
If you’re wondering whether or not you should pay off a collection account, the best thing to do is to talk to a credit counselor or financial advisor. They can help you assess your situation and make the best decision for your individual circumstances.
Here are some additional things to keep in mind:
- Don’t pay a collection agency until you’ve verified the debt. Make sure that the debt is actually yours and that the collection agency is legitimate.
- Try to negotiate with the collection agency. You may be able to settle the debt for less than the full amount.
- Get everything in writing. This includes the agreement to settle the debt and the confirmation that the collection agency will remove the account from your credit report.
- Monitor your credit report regularly. Make sure that the collection account is removed from your credit report after you pay it off.
Remember, paying off a collection account is a personal decision. The best option for you will rely on your unique situation; there is no right or wrong answer.
Here are some additional resources that you may find helpful:
When Does Debt Get Sent to Collection?
An internal collection department may initially be tasked with handling your account when you are 30 days overdue on a payment. Put differently, the company that owns the debt still has ownership of it, and they may contact you to try and arrange a payment.
If you fall three-to-six months behind, the debt will likely be sold to a third-party debt collection agency. When this happens, the results can be more stressful and overwhelming. If you want to stop debt collector harassment, stop receiving collection calls, and work toward improving your credit, make sure to follow the above steps.
Verify the Debt is Yours
You might be tempted to hang up when a collection agency calls, but this is your chance to obtain important information.
Without disclosing any personal information, you can find out where the debt originated and possibly even determine that it is not yours.
Be sure to ask for the following:
- The initial creditor’s name and the date the debt was incurred
- The debt balance, including interest charges and fees.
- The representative you are speaking with and the name and contact details of the debt collection agency
- Ask to be contacted exclusively by letter, and request written confirmation of the debt.
After the call, you have 30 days to check and see if the debt belongs to you. You can do that by pulling your free credit reports or by looking at financial records such as bank statements or old bills.
You can take action to contest the debt and stop the calls if the account is not yours.
Should You EVER Pay Collections – Common Sense Advice | Will Paying Collections Improve Your Credit
FAQ
Will my credit score go down if I pay a debt collector?
Is it bad to pay a debt collector?
Does settling with a debt collector hurt your credit?
What happens when you pay off a collection?
Does a debt collection account affect your credit score?
If you’re getting calls from debt collectors about unpaid credit cards or other bills, you might be wondering how these collection accounts will affect your credit score. Generally, a more recent collection account will do more damage to your FICO score. Newer scoring models ignore paid collections.
Will paying off a collection account affect my credit report?
Paying off a collection account will note the account as “paid” on your credit report, but the effect on your credit depends on the scoring model. Some credit scoring models ignore $0 balance debt collections and treat certain types of debt different from others. If you pay the account, it won’t be removed from your credit report, though.
Does paying off collections improve your credit score?
But paying off your collections accounts may not improve your credit score. It will depend on which credit scoring model is used to calculate your score and what other items are on your credit report. That said, there are many good reasons to pay off accounts in collections, even if you don’t see an immediate bump to your credit score.
Should you pay a debt that’s in collections?
Focusing solely on the damage done to your credit scores can make you miss the other benefits of paying a debt that’s in collections. Here are some ways paying can help you: If your debt hasn’t yet passed the statute of limitations, the collector could sue you for the money you owe, perhaps leading to wage garnishment.