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Does paying off collections help your credit score?

Published February 5, 2024

4 min read

Key Points About: Paid debt collection

The impact that paying off an account in collections has on your credit score depends on a number of factors.
Even if you pay an account in collections, it may still show up on your credit report.
There are other benefits to paying off your past-due accounts in collections.

How does debt collection work?

If you don’t keep up with your credit card or loan payments, your original creditor may send your unpaid debt to a collections agency. According to the Consumer Financial Protection Bureau (CFPB), a collection agency (or debt collector) is a person or a company who collects debts owed to others, usually when those debts are past-due. In addition, your debt may be reported to a credit reporting agency.

A collection on your credit report may show potential lenders that you defaulted on a debt and had to have that account sent to a collection agency. Collection accounts are typically considered negative information in your credit history.

How do collections hurt your credit score?

According to the Office of the Comptroller of the Currency, under the Fair Credit Reporting Act, a collection account can stay on your credit report for up to seven years. As long as an account shows up on your credit report, it can factor in your credit score.

Collection accounts fall under the ‘payment history’ portion of your credit report, which accounts for 35% of your FICO Credit Score ¹, according to MyFICO.com. Your payment history makes up the largest chunk of how your credit score is calculated. The negative impact that a collections account has on your credit report may lessen over time, according to the same source.

Did you know?

You can avoid collections by always paying your bills on time, and autopay can be one solution to avoid a late payment on your credit card bill. Discover^® Cardmembers can set up DirectPay, which withdraws your credit card payment from a bank account automatically. Not a Discover Cardmember?

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When you apply for new credit, like a personal loan, credit card, or mortgage, lenders may request a copy of your credit report, and you may have issues getting credit approval if you have a collection reported.

You should always try to avoid getting your account sent to collections by making on-time payments to stay on top of a good credit score. But if you do find yourself with an account in collections, you may wonder if paying off a collection account positively impacts your credit score? The answer depends on many factors including the age of the account, collection amount and the credit scoring model that your lender is using.

Does paying off collections affect your credit score?

According to the CFPB, a paid collection is a debt that you either paid in full or settled for a partial amount. When you pay off a debt, that paid off status is often reflected in your credit report (if the creditor reported the original debt to the credit bureau). The impact that paid collections has on your credit score depends on the credit scoring model that your lender uses.

For example, according to MyFICO, with FICO Score 9 and FICO Score 10 versions, paid third-party collections don’t have a negative impact on your credit score. They also give less weight to medical collections. On the other hand, if your lender uses other credit scoring models, like the FICO Score 8, a paid off collections account may not make a noticeable difference to your credit score.

Do paid collections stay on your credit report?

Based on information from Transunion, collections accounts may stay on your credit report for up to seven years, even when they’re paid off in full. Which means that even when paid, collections accounts may have an impact on your credit score. However, the impact of collection accounts on your score may lessen with time.

What are the benefits of a paid collection account?

A paid collection may not necessarily affect your credit score, but there are many other benefits that come with you paying off a collection account. Some benefits of taking care of unpaid collections include:

You may be able to avoid a lawsuit from the original lender or the debt collection agency.
You may be able to minimize interest charges and other charges on your unpaid balance.
You could avoid wage garnishment.
You may have an easier time getting new lines of credit.

A paid off collections account may or may not result in a change to your credit score, but it may give you peace of mind and other benefits that come from no longer having to deal with the debt.

It’s always better to avoid getting your debt sent to a collection agency. If you can’t keep up with a payment, you should try to contact your creditor to explain your situation. Your creditor may be able to help you come up with a payment plan to help you catch up.

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