Can I Improve My Credit by Paying Collections?

By Arlene Isenburg on October, 20 2021
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Arlene Isenburg

Credit can be a nebulous concept, and it can be tricky how different factors affect your credit score. One thing is clear though: unpaid bills and debts can be sent to debt collectors, which will hurt your credit. If you’re reading this article, you have probably already experienced this and are wondering, “Can I fix my credit by paying off collections?” We’re here to help.

Debt Collection Basics

If you fail to pay a creditor/lender or are delinquent on a bill, they can send your debt to a collector. You will receive letters and phone calls from your creditor before this happens, giving you another chance to pay the debt off before it goes to collections. The best thing you can do at this point is to make your payment and settle your debt before it is sent to collections.

A debt collector is a third party who has been tasked by your creditor to collect your debt payment on their behalf. Debt collection can be handled by an agency or a single person. A creditor sends a debt to collections after it has been written off as a loss and they believe you will not pay it. Generally speaking, an unpaid debt will not be sent to a collection agency until it is 120-180 days past due. You are still legally responsible for paying your debt even if it has been sent to a collector.

How Collections Affect Credit

A collections account will show up on your credit report, which is created by the credit-reporting bureaus Experian, TransUnion and Equifax. And a collections account can have a serious impact on your credit score both with FICO and VantageScore, the two major credit-scoring models. Your payment history, which includes collections accounts, makes up 35% of your credit score and has the single biggest impact on your score. One credit collection on your credit report can bring down your score by 100 points.

Unpaid or late payments are put into categories with varying impact on your credit--i.e. 30, 60 and 120 days late. It goes without saying that the longer your debt goes unpaid, the more it will negatively impact your credit. Additionally, the number of debt collections can impact your score. Having several debts in collection will have a more severe impact than having one. And the amount of the debt factors in, with some credit-scoring models ignoring small debts (under $100). Some models even consider the kind of debt (i.e. a medical bill or a student loan).

Does Paying Collections Improve My Credit Score?

The answer to this question, like so many others, is it depends. As mentioned above, different credit-scoring models are used by different lenders, and the models differ. Some lenders, including many mortgage lenders, use older credit-scoring models that still count zero balance (or paid off) collections toward your credit score, which means that even if you pay off the debt, it will still hurt your credit.

But paying off collections could raise your credit for newer scoring models that ignore paid-off collections accounts with no balance. Though paying off debt may not help much if you have several debt collections or if the paid-off collection is old, because older debts have less of an impact on your credit than newer debts.

While paying off your collections account may or may not help your credit score, it could help you in the future by making you a better, more reliable loan candidate in the eyes of lenders. That’s because, while it still affects your credit, at least you’re showing them that you paid it off. Plus, some mortgage lenders require borrowers to pay off collections before they can be eligible for a mortgage.

How Can I Remove Collections From My Credit Report?

Collections can only remain on your credit report for seven years. But unfortunately, collectors (and the credit reporting bureaus) do not have to remove collections when they are paid off.

But you do have some recourse if there is a mistake in your credit report. Just like with other errors in your credit report, an incorrect collections account can be disputed, fixed and removed from your report. But disputing legitimate collections will not have the desired effect.

Can I Improve My Credit Score After a Collection?

While you may or may not be able to help your credit score by paying off a collection, there are ways to improve your credit after a debt collection. The easiest thing you can do is not apply for credit unless it’s necessary. When you apply for a credit card (or any other kind of credit-related account or loan), it dings your credit score. This is called a hard inquiry. The negative impact of a hard inquiry is minimal and temporary, but many hard inquiries will add up. So while credit accounts are important for building your credit, you should be careful to not overdo it while you rebuild.

Another way to improve your credit is by reducing your credit card debt. Credit-scoring models factor your credit utilization ratio (also called your credit utilization rate) into your credit score. This ratio is what you owe divided by your credit limit. The balance tells you how much credit you are using out of your total available credit. So a credit utilization ratio of 40% means you are using 40% of the total credit available to you. Less is more when it comes to this ratio, and most financial experts agree that 30% should be your max. This figure greatly affects your credit score--it accounts for nearly 1/3 of your score on some credit-reporting models.

Due to payment history having such a big impact on your credit score, the best way to improve your credit is not to miss payments. Try setting up automatic payments if it will help you, because if you don’t miss any bills, there will be nothing negative to report to the credit reporting bureaus. Once a payment is 30 days late, it can be reported and impact your credit score.  

The Bottom Line

The single best way you can help your credit is by paying off your debt before it is sent to a collector, because paying it off once it hits collections isn’t guaranteed to raise your score. To monitor your credit, you can get a free credit report from each of the credit reporting bureaus every year via