Does Paying Off Collections Help Your Credit Score?

What Are Collection Accounts?

A collection account is an entry on your credit report signifying an unpaid debt in default that your creditor has turned over to an in-house collection department or a third-party debt collection agency.

Accounts in collections appear on your credit report and can have serious repercussions for your credit score. It's usually not necessary to check your credit report to find out if an account is in collections because collection agents are very proactive and persistent in their efforts to get payment. They'll typically contact you by phone, mail or email in their attempts to collect payment.

Paying is often a good idea, not only because you presumably owe the debt they're seeking but also because it will get the bill collectors off your back. There's also a chance, though no guarantee, that paying off an account in collections could benefit your credit score.

How Do Collections Affect Your Credit?

Collections fall under payment history, which is the most influential factor in your FICO^® Score^{☉ Θ} and VantageScore^® credit score. Consumers with collections on their credit reports may have lower credit scores than consumers who have no collections.

A collection account can stay on your credit report for seven years from the date of the first missed payment that led to the account being turned over to collections. How much it costs you in the meantime depends on the type of debt and the version of the credit scoring model a lender uses:

• Medical collections: The national consumer credit bureaus (Experian, TransUnion and Equifax) no longer list paid medical collections or unpaid collections for medical debts of less than $500 on your credit reports, so those debts cannot affect any credit score in any way.
• FICO^® Score 9 and FICO^® Score 10: The newest versions of the FICO^® Score ignore all paid collections and reduce scores less when an unpaid collection is for a medical bill than when it's for another type of debt. Also, collections under $100 are ignored entirely.
• FICO^® Score 8: The most widely used version does not make this distinction; it lowers scores if a collection account for a debt of $100 or more appears on your credit report, whether it's paid or unpaid.
• VantageScore 3.0 and 4.0: The most recent VantageScore versions ignore all paid collections and all medical collections, whether paid or unpaid. Unpaid nonmedical collection accounts can still hurt your VantageScore credit scores, however.

Will Your Credit Score Improve if You Pay Off All of Your Collections?

Depending on the nature of the collection account and the model used to calculate your score, paying off a collection account could cause your score to increase or it could have no effect at all.

Paying off collection accounts can raise credit scores calculated using FICO^® Score 9 and 10 and VantageScore 3.0 and 4.0, but it won't have any effect on scores produced by older FICO scoring models. That includes the many lenders who still use the FICO^® Score 8 model.

How Much Will Your Credit Score Go up After Paying Off Collections?

There's no way to predict how many points you'll gain, because your credit score is calculated from everything on your credit report rather than from one account on its own. It also depends on the credit scoring model you or your lender uses.

Paying off a collection account could raise your score, leave it where it is or even lower it slightly, depending on what else your report contains.

If the collection account is the only negative mark on an otherwise clean credit report, paying it off can make a noticeable difference with the newer models. Since collection accounts are often accompanied by late payments and a loan default, however, those derogatory marks will continue to hold your credit score back—regardless of how you handle the debt in collection.

Can You Remove Paid Collections From Your Credit Report?

You can't remove paid collections from your credit report. A paid collection account won't come off your credit report until seven years from the first missed payment that led to the account being turned over to collections.

But if an account is misreported as being in collections or is the result of fraud, you have the right to dispute it with the bureau that supplied the report.

Medical collections are the exception. Accurately reported medical collection accounts come off your credit report once you pay them.

How to Improve Your Credit Score After Collections

Whether paying off collections raises your credit scores largely depends on the credit scoring software a lender uses to evaluate your applications. These tried-and-true techniques can help increase your credit scores no matter what scoring system is used:

• Pay your bills on time, all the time. The key to long-term credit score improvement is preventing new negative entries from appearing on your credit reports. That means making every debt payment on time, every month. By establishing a budget that covers your bills and using autopayments, calendar alarms or any other tools that work for you, you can avoid late payments. Do this, and you won't have to worry about collection accounts or debt collectors.
• Keep credit card debt to a minimum. Keeping your credit card debt as low as possible is another good way to improve your credit scores. Credit scoring models consider your credit utilization ratio, or credit card balances as a percentage of their credit limits, when calculating your scores. The lower your utilization rate, the better it is for your credit score.
• Don't apply for credit unless you need it. Each time you apply for new credit, the lender will likely pull one, if not more, of your credit reports. This will result in a hard inquiry on your reports, which can lower your scores temporarily. And while inquiries are one of the least influential factors in your credit scores, they can still be a red flag to lenders.

The Bottom Line

Paying off collection accounts could improve your credit scores, but there's no guarantee since you can't know which credit scoring model a lender will use to process your credit application. As newer credit scoring models gain more traction, the benefits of paying off collection accounts are likely to become more widespread.

If collection accounts have hurt your credit, or if you're just looking for ways to improve your credit scores, consider using Experian Boost^®ø®ø to add recurring bill payments to your Experian credit report.