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Credit Advice
Topics addressed on June 22, 2011:
Paying off old accounts is first step in credit recovery
Dear Experian,
Am I gaining anything by paying off old accounts on my reports?
- DMB
Dear DMB,
When you pay off old debts you reduce your outstanding balances and, depending on the type of debt, possibly your utilization, which will likely benefit your credit scores. However, if the accounts are seriously delinquent or have been sent to collection you may not see much improvement, if any.
Utilization is one of the most important indicators of credit risk. If you have large outstanding balances as compared to your credit limits you are likely over using your credit. Because you are stretching your ability to pay the debts you owe, any unexpected situation, such as an illness, accident or home repair, you may not be able to repay your debts.
By reducing your balances, you increase your ability to pay for new debt even if faced with a financial challenge.
However, if your debts have been charged off or sent to collection, you have seriously impacted your creditworthiness. Repaying a collection account probably will not have an instantly positive impact on your credit scores.
Still, repaying the accounts is an important first step in restoring your creditworthiness over time.
Thanks for asking.
- The "Ask Experian" team