Credit Report & Scores » Report Advice » Charge Off » Paying off Closed or Charged off Accounts

Paying off Closed or Charged off Accounts

Dear Experian,

Does paying off a closed or charged off account raise your credit scores?

-TYC

Dear TYC,

Paying a closed or charged off account will not typically result in immediate improvement to your credit scores, but can help improve your scores over time.

Paying Off a Charged Off Account

If the creditor has not sold or transferred the debt to a collection agency, the charged off account still will report the balance owed. Once the balance is paid, the account status will be updated to show “Paid Charge off” and the balance will be updated to zero.

Often, when an account is written off or charged off, the creditor will sell the debt to a collection agency and the balance on the original account will be updated to zero. If so, you no longer owe the balance to the original creditor. Instead, the collection agency becomes the legal owner of the debt.

If this is the case, making payments to the original lender will not result in a change to the status of the original account. Any payments should be sent to the collection agency. Once paid in full, the entry for the collection account will be updated to “Paid Collection.”

Impact of Paying Off A Past Due Account

Paying an outstanding debt is always better than not paying it, but how much it will affect your credit score (if at all) depends on other factors in your credit history.

For example, if you have too much outstanding debt, eliminating that debt will have a positive impact on that factor.

It also depends on the credit scoring formula being used. Some of the newer credit scores exclude collection accounts from the calculation once they are paid in full, so your credit score may improve as soon as the account is updated to show paid.

Even if the credit score your lender uses doesn’t exclude paid collections, paying the debt in full can help reduce the negative impact, resulting in scores improving over time.

Thanks for asking.
The “Ask Experian” team