Reasons Against Paying Collections
Paying collections can cause more harm than good. Some agencies may falsely report paid debts, and they may also charge outrageous fees, reducing any savings achieved. Additionally, paying collections could drop credit scores due to a sudden credit reduction. Collection accounts stay on credit reports for 7 years after the original debt, so paying them off may not quickly fix credit. Ignoring communication leads agencies to likely file lawsuits to get judgments enabling garnished wages and seized assets. Instead, try negotiating or disputing errors without paying. Consider other options before paying collections.
In most states, the debt itself does not expire or disappear until you pay it. However, some scoring models don’t continue to penalize you once collections are paid. Paying anything on a collection may restart the statute of limitations, making you vulnerable to lawsuits for the full debt amount. Paying off a collection won’t remove it from your credit report and gives the collection agency the impression that you may be an easy target for future collections.
Paying off Collections: Is it Beneficial?
What happens once a collection is paid off? The debt collector will update your credit reports to show the collection account now has a zero balance, which may positively influence a lender’s opinion. Unfortunately, your credit score won’t increase if you pay off a collection account, as the item won’t be removed from your credit report; it will simply show as “paid.”
One of the primary benefits of paying off collections is that it can signal to lenders that you’re actively improving your financial situation. Contrary to what many consumers think, paying off an account that’s gone to collections will not improve your credit score right away. Negative marks can remain on your credit reports for seven years, and a collection account affects your credit score mostly through the amount of debt that you owe; the more debt you owe, the lower your score will be.
Paying off collections is up to the individual to decide whether it makes sense for their financial goals. Any collection entries related to the same original debt will disappear from your credit report seven years from the date of the first missed payment that led up to the charge-off.
Additionally, paying off one of multiple collection accounts can potentially increase your credit score, but it does not guarantee an increase. Nevertheless, it is generally advisable to pay off collections as soon as possible to avoid further damage to your credit report. Though paying off the debt will not remove the history of the collection account, paid collections generally have a positive effect on credit scores and reports over time. As the collection account ages, it will have less influence on your credit score and eventually will drop off your credit report altogether.