Does Paying off Collections Improve Credit Score?

Does Paying off Collections Improve Credit Score?

12:59 AM April 25, 2019

Do you owe money to a collections agency? Do you keep getting phone calls that interrupt your daily life? Are you so fed up that you want to just pay it off now? Before you do, ask yourself, does paying off collections improve your credit score? We have some information that will show you if paying off collections improves your credit score or not.

Different Debts

Different Debts


The debts you may have could be student loans, leftover balances owed on car repossessions, unpaid collection accounts, or tax liens. These debts can be cleared once they are in delinquency status, which happens when you miss a certain number of payments. Delinquent debts can be paid in full or you can try to talk to your creditors to reach a settlement. Sometimes they will let you pay less than what you owe.

Dropped Credit Score

Dropped Credit Score

By tracing data from those who have delinquent original accounts, or accounts in collections, average credit scores were much lower than those who did not have past accounts or anything in collections. If you are facing collections or past due accounts, your credit score has most likely dropped significantly.

Here are a few facts in relation to credit scores.

  • The average credit score for those who have one account in collections is 570.
  • The average credit score for those with at least one past due account is 551.
  • The average credit score for those who do not have any past due accounts or in collections is 621.

Reporting Delinquent Debts

Reporting Delinquent Debts (4)

Does paying off collections improve bad credit, the answer is no. Not by itself. Simply just paying off your past debts is not likely to help your credit in the short term. It may help the long-term effects, but it isn’t instant. Since your debt has been paid or settled, the next thing to do is to make sure that the paid off bill is shown on your credit history.

The report should show an update within 30, however, this is never the case. You should never assume that your creditor will correct it automatically. You may have to dispute it with the creditor reporting bureaus and make sure it gets updated. The credit bureaus are obligated to investigate and resolve the claim. It is not a fast process though. If you have documentation as proof, this will speed up the process and be very helpful in doing so.

How Does Paying off Old Debts Affect My Credit Score?

How Does Paying off Old Debts Affect My Credit Score

When you think about whether or not paying off collections improves your credit score, we also want to know how it affects our score in general. As soon as your credit reports have been updated with the newest payments, your credit score should have improved.


The FICO scores that the credit bureau uses is not the only model, its just very popular. There is also a Vantage Score that is used by Equifax, Experian, and TransUnion. Paying off an old debt won’t necessarily do much for your score, it will just soften the blow of the negative mark from the late payments.

What Do Credit Scores Mean?

What Do Credit Scores Mean

Credit score models are pretty cut and dry, actually, the range is self-explanatory. Check this out:

  • Excellent Credit—> Score: 750 & Above
  • Good—🡪       Score: 700-749
  • Fair—🡪       Score: 650-699
  • Poor–🡪       Score: 550-649
  • Bad–🡪       Score: 550 & Below

If your account has yet to go to collections, knowing how to pay off collections and really paying them off or settling it can possibly help improve your credit score. To start with, understanding how to remove collections from your credit report, most of the time its just a matter of time and payments. Clearing a debt that you have an impact on your credit utilization ratio, which is the amount of credit you’re using versus your total credit limit. Credit bureaus advise that you use about 30% or less.

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Prioritizing Delinquent Debts

Prioritizing Delinquent Debts (3)

When you have multiple passed due debts, you may feel overwhelmed and worried about what to pay first. Which one will affect my credit score the most? In terms of credit reporting, negative items can remain on your report for seven years from the date due. That includes late payments, collections, and charge-offs.

The immediate impact of negative items does make your credit score decrease. If you have a mixture of old debts and new ones, you should pay off the ones that are the just recent ones. The new debts will affect your credit score more and paying those off first will help you out in the long run.

After seven years with a past due debt, you need to be careful when paying it off. It should have fallen off of your credit report completely but any new activity, even if you pay a little, can reactivate that account. If you pay the old debt, it will appear as new account history and the statute of limitations is reset.

Another detail that may be important is that medical collection accounts are treated differently than non-medical accounts. They do not hurt you as badly. You should definitely pay off non-medical collections before medical ones. They will boost your score more too.

Settling Vs. Paying in Full

Settling Vs. Paying in Full

Settling debt means that you’re asking the creditor or collections agency to accept less than what you owe. This means what you agree upon will be what you pay them, it will be a significant part of your debt, but smaller than the balance.  If you have been a loyal customer, your creditor may accept a settlement that’s thousands less than what you owe. Paying in full gets the same result as settling.

How Does Paying Off Collections Improve My Credit Score?

How Does Paying Off Collections Improve My Credit Score

If you settle or pay in full on your past due debts, there will be a change in your credit score. There are sometimes that your score may actually increase. It is all based on which model is being used and what you have paid collections as well. Your score may not change at all though, so keep an open mind about this and make sure to follow up with everyone after a week or two of payment received.

Your credit score could climb a few points, or it could rise by 30. If you paid a past due debt recently, you can check your credit score to see how many points you increased. Pretty soon, you’ll be back on the road to good credit too.

Published April 25, 2019; UPDATED May 17, 2019.

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