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The Impact of Paying a Collection Account on Credit Scores

Dear Experian,

Does settling a debt that is showing negative on my credit report as a “collection”, get removed from my report as soon as it is paid? Does paying this debt help raise my credit score?

– ONY

Dear ONY,

A paid collection isn’t removed immediately from your credit report. The important thing to remember is that your credit report is a history of how you have managed your credit over time. That history will include both the good and bad.

The good news is that the negative information will not remain forever. Negative information, including collection accounts, is deleted seven years from the original delinquency date. The original delinquency date is the date reported for the first missed payment on the debt. That date carries over from the first account to the collection account, so both accounts will be deleted at the same time.

Paying A Collection Account Can Help Credit Scores

Some of the newer credit scoring models exclude paid collection accounts when calculating your score, so paying off a collection account has the potential to increase your credit scores right away.

Even if the scoring model being used does include paid collections, lenders may view a paid collection less negatively than an unpaid one. Paying off the past due debt also will reduce the total amount of debt you owe.

Settled is Not the Same as Paid in Full

You mentioned settling your debt. Keep in mind that settling your account for less than the full balance owed is not the same as paying the account in full. Settling an account is considered negative because you are not paying the entire amount of the debt as you agreed under the original contract.

Paying Bills on Time is the Most Important Factor in Your Credit Scores

Going forward, the important issue will be that the payment history for your other accounts is consistently on time. Lenders are looking for a pattern of positive credit management. The longer you have paid your other bills on time, and the further in the past the collection account was paid, the more positive your credit history becomes.

Although paying the debt might not make a significant change right away, it will help you rebuild your credit history faster.

Thanks for asking.
The “Ask Experian” team