does paying off collections improve credit score

does paying off collections improve credit score

When you miss several payments to a creditor or lender, they may choose to send your account to collections. Typically, lenders try to collect the debt first themselves for 120 to 180 days before passing it off to collections.

A collection agency is a third-party vendor that will try to contact you in an attempt to collect your debt. 

Some people don’t know what to do about unpaid collection accounts on their reports. It’s important to note that you’re still legally obligated to pay this debt. But you may have noticed that having a debt in collections has lowered your credit score.

So, if your credit score has taken a hit, will paying off collections improve your credit score? The short answer is no, but keep reading to learn more. 

How do collections affect your credit?

When a debt is sent to collections, it shows up as a negative item on your credit report because it indicates you were extremely delinquent on payments to a lender. This negative item can then bring down your credit score, which impacts your ability to acquire credit in the future. 

Unpaid debts on your credit report are assigned a category depending on whether they’re 30, 60 or 90 days late. However, a collection debt is one of the worst types of unpaid debts on your credit report because it indicates that the lender has given up on your debt (written it off) entirely. 

A collection account will usually stay on your credit report for seven years from when you stopped making payments. Additionally, it can significantly impact your score because collection debts fall under “payment history,” which is the credit factor that makes up the most of your score (35 percent). 

Luckily, a collection account’s impact on your credit score does lessen over time. Additionally, it should fall off your credit report after seven years (regardless of if you’ve paid it or not). 

What are your rights when working with collection agencies?

Consumers are protected when working with collection agencies under the Fair Debt Collection Practices Act (FDCPA). This act is meant to prevent collection agencies from using abusive, unfair, manipulative or deceitful means in an attempt to collect a debt. Under the FDCPA, collection agencies cannot:

  • Contact you at work
  • Contact you before 8:00 a.m. or after 9:00 p.m. unless you’ve allowed it
  • Discuss your debt with anyone other than yourself or those you’ve given permission for them to speak to
  • Lie or deceive in an attempt to collect your debt

What happens if you pay off a collection account?

Unfortunately, your credit score won’t increase if you pay off a collection account because the item won’t be taken off your credit report. It will show up as “paid” instead of “unpaid,” which might positively influence a lender’s opinion.

But that won’t necessarily change the item’s negative impact, especially if a lender only looks at your credit score and not the details of your report. 

So, why do people bother paying off collection accounts?

First, you’re still legally obligated to pay off the debt, so by paying it, you can avoid debt collection lawsuits and interest or fees from debt collectors. 

Additionally, the new FICO® scoring model has started implementing a change that ignores collection accounts with a zero dollar balance. So if a potential lender uses that model, you will benefit from having paid your account in collections.

Note that in some states, making a payment toward the collection debt can restart the countdown determining how long the item will be on your credit report. So, if your debt was two years old and would fall off your report in five more years, making a payment toward the debt could bring the timeline back up to seven years.

Be aware of this if you’re considering making multiple partial payments on your collection account rather than one lump-sum payment.

Finally, it might be a good idea to pay off your collection debt because it will stop debt collectors from suing you or otherwise pursuing the money, which can get tiring.

How do the credit scoring models view paid collection accounts?

As we mentioned, the new credit scoring models—FICO 9®, VantageScore 3.0® and VantageScore 4.0®—ignore collection accounts with zero dollar balances. This means that when you pay your collection account, your score might improve with these three models.

Unfortunately, though, most lenders don’t use these models yet. It might be several years before the majority of lenders start to use these credit models. 

How can you remove a collection account from your credit report?

These methods aren’t guaranteed to work for everyone, but they might work for you—if not, you might have to wait seven years for your collection account to drop off. 

You can start by reviewing your credit reports to see what you’re working with (the number of collections, the amounts, how old they are, etc.). Then decide which of these methods you want to try:

Send a pay-for-delete or goodwill letter

You can negotiate with your collection agency in a few ways. A pay-for-delete letter asks the collection agency to remove the debt from your credit report if you pay them a certain amount (usually less than the original amount owed).

Not all agencies will be open to a pay-for-delete agreement, but it can be worth it to try to get it off your credit report. If you do go this route, make sure to get everything in writing. You should have a written copy that includes the dates, payment amounts and all negotiated terms. 

The other option is a goodwill letter. If you have a long history with a lender and this debt was a one-off mistake, you could send them a goodwill letter asking them to make an exception.

In this letter, you should point out how long you’ve been with this lender, details of how you’ve always been on time with payments other than this one time and your promise to rectify the situation.

In order to maintain a positive relationship with each other, you ask them to remove the collection from your report. Note that this typically only works if you’ve also paid off the debt, so the lender hasn’t lost money. 

Dispute any errors

Another good idea is to check your credit report for errors related to the collection account, whether it’s paid or unpaid. If you see any mistakes, you can dispute them. Errors can include wrong dates, wrong amounts, wrong names and more. If any of these details are incorrect, you have a viable dispute. 


The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. 

Most negative marks can remain on your credit reports for up to seven years, and may affect your score until the item is removed.

Our guide will explain why paying off collections alone doesn’t usually improve your score, and we’ll offer tips on how to potentially get old debts removed from your credit reports.

How does paying off a collection account affect your credit report?

With most collection accounts, if you pay them in full, their impact on your credit doesn’t go away immediately. You’ll usually have to wait until they reach the end of their seven-year reporting window. The good news is that the older the information is, the less impact it should have on your credit.

While paying off collections may not generally improve your credit score—see below for an exception to this—there are still a few ways doing so can benefit you:

  • You can avoid a debt collection lawsuit for unpaid medical or credit card bills.
  • You can dodge interest fees from debt collectors. Debt collectors constantly buy and sell accounts and can continue to charge you interest and fees on purchased accounts.
  • It will show up on your credit report as “paid in full” or “settled.” This could positively influence lenders who might look beyond your score to your credit history. A person who pays back a severely past due account shows more financial responsibility than someone who never paid it.
  • You can eventually benefit from one of the newer FICO® Score models. FICO 9 is rolling out very slowly, but eventually it should be used by most lenders. This model gives less weight to medical bills and ignores paid accounts in collections entirely.

As of summer of 2022, any paid medical debt in collections should be dropped from consumers’ credit reports, as well as any medical collection debt under $500. This is a win for all consumers, especially those struggling with medical debt, and it’s a great reason to pay this debt off even when it’s past due. And though this only applies to medical collection debt, we do still recommend paying off collection debt when possible.

3 ways to potentially get collection accounts removed from your credit report

The first step you need to take is to order credit reports from the three major bureaus: Experian, TransUnion and Equifax. Collections may be reported to only one or two bureaus. There are a few different ways you can try to remove collections from your account, some with more success than others. We review these options below.

Bear in mind that the results of these methods vary and not every consumer will have the same outcome. However, it’s always worth exploring, and your credit score may improve as a result.

1. Send a pay for delete letter

Collection agencies and lenders may remove collection accounts if you negotiate with them. One tool is the pay for delete letter, which is a written request to have negative marks removed in exchange for a partial or full payment.

A collection agency is contracted to collect payment on a debt for the original creditor or lender. They receive a percentage of the amount collected. In order for it to be an incentive, a pay for delete letter may need to offer an amount greater than the collection agency paid for your debt.

Your pay for delete letter should include relevant information such as:

  • Dates
  • Payment amounts
  • Negotiation terms

If the creditor agrees, always make sure to receive the creditor’s agreement in writing before making any payment. If you want to learn more or are looking for a letter template to use, read about how to use a pay for delete letter as a negotiation tool.

Not all creditors will accept pay for delete letters. Most banks and mainstream creditors are not open to negotiation, but small utility bills that go to collections might be more receptive to this strategy.

2. Request a goodwill deletion

If you have an otherwise good credit history with an isolated negative item, you might consider writing a goodwill letter to the original creditor. It is a request to remove the negative items from your credit report out of goodwill. Creditors want to help you, especially if you’re a long-term client with a good past relationship.

You’ll want to reference the length of time you’ve had an account with a creditor and mention that, moving forward, you intend to keep your account in good standing. Discuss how your credit history is promising and how your late payment was a one-time error.

Then, clearly state your request for a line item revision on your credit reports as a gesture of goodwill.

3. Dispute the collection item

If you discover any inaccurate, unfair or unsubstantiated items on your credit reports, you are entitled to dispute them with the credit bureaus, creditors or collection agencies. The credit bureau is responsible for investigating the errors.

If the item cannot be verified, you may be able to get it removed from your report (and potentially improve your credit as a result).

Here is how to dispute collection accounts:

  • Review your credit reports for errors. You’re entitled to dispute any errors including dates, names, spelling and balances owed.
  • Write to the collection agency to request that they validate the claim. Your letter should state that you want the collection agency to validate that this unpaid debt actually belongs to you. If they can’t, state that you want the account removed from your credit report.
  • Know when to get professional help. Disputing collections or any other type of negative item is no easy task. For many consumers, this can be overwhelming. If this is the case for you, it may make sense to seek the guidance of a credit repair firm.

Keep copies of your disputes and don’t forget to state clearly in your letter that you want a response from the collection agency within 30 days.

How long do collection accounts normally stay on your report?

As we’ve mentioned before, most negative items reported by your creditors can stay on your credit reports for up to seven years, according to the Fair Credit Reporting Act (FCRA).

Unless you have reason to dispute a debt collection on your report as inaccurate or unverified, it will likely stay on your credit reports for this time frame.

How will collection accounts affect your credit?

When a collection account is added to your credit reports, it can affect your score significantly. Typically, the higher your score, the more points you might lose.

Collections tell potential lenders that you failed to pay back a debt and that you pose the same risk to them if they decide to lend you money.

Know your rights with debt in collections

Having a debt in collections doesn’t mean you don’t have rights. You shouldn’t suffer harassment as a result of being unable to pay your bill.

The Fair Debt Collection Practices Act (FDCPA) outlines your rights, including the following:

  • A collection agency cannot contact you at work if you have specifically informed them that your employer will not allow you to receive their calls in the workplace.
  • They cannot contact you before 8 a.m. or after 9 p.m.
  • Debt collection agencies are strictly prohibited from deceiving you. For example, it would be illegal for them to claim they are a law enforcement agency in order to scare consumers into paying.

Having a debt in collections is overwhelming for anyone, but you should remember that you still have rights. If a debt collection agency violates these rights, you can report them to the Attorney General’s office in your state or the Federal Trade Commission (FTC).

Credit repair and collection accounts

It’s important to understand when it’s time to get outside help. If you have accounts in collections because of your inability to pay off your debts, you’re dealing with enough stress as it is.

By engaging in credit repair, whether on your own or with the help of a trusted credit repair company, you may be able to get negative items that are affecting your credit history removed from your credit reports.

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Author J Lipsky

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