How Many Points Will My Credit Score Increase When I Pay Off Collections?

If you’re like most adults in the United States, then keep your credit score high is important to you. But what happens when a collections account is added to your credit report and how many points will your credit score increase if you pay off a collections account? We will discuss the answers to these questions in much detail below.

How Many Points Will My Credit Score Increase When I Pay Off Collections?

Your credit score will increase 0 points when you pay off a collections account. This is so because collection accounts have the same impact on your credit score regardless of whether they’re paid or not. Only having a collection account completely removed from your credit report will increase your credit score.

Collections that are added to your credit report will remain on there for 7 years from the date that you first became delinquent on making your payment. After the 7 year period, the collection account will automatically be removed from your credit report.

For example, if you failed to pay your credit card’s monthly payment on January 1st, 2021, and your balance was sold to a collections agency, the collections account that’s added to your credit report will remain on there for 7 years and will be removed on January 1st, 2028.

The only way to immediately reduce the impact that a collection account has on your credit score is to contact the collection agency and ask them to remove the collection account from your credit report in exchange for payment of the past due balance.

If you simply pay the collections account believing that its impact will be removed, you’re mistaken as a paid and unpaid collection account will have the same negative impact on your credit score.

That said, paying off a collections account does have some benefits that we will explain below.

Benefits of Paying Off a Collections Account

Although paying off a collections account will not improve your credit score, here are some of the benefits of paying off your collections:

  • Lawsuit – The biggest benefit of paying off a collections account is that you will avoid being sued for the amount due. If you owe a large amount of money, the collection agency may bring a lawsuit against you to compel you to pay. If the collection agency is successful in its lawsuit, it might be able to recover its money by garnishing your wages. As such, if a collections account being reported on your credit report, you’re better off paying it to avoid being sued in civil court.

  • Fees & Interest – The second benefit of paying off a collections account is that it will save you from paying interest on the amount owed, as well as fees from the collection agency. As such, to avoid additional fees and interest, you should consider paying off your collections account.

  • Lenders – The third benefit of paying off a collections account is that some lenders and card issuers will be unwilling to open an account for you unless you have no collections account that is past due. As such, paying off a collections account will make it easier for you to obtain credit and loans because if you pay it off, the account will be marked as paid. Future lenders will see the paid notation and will therefore be more willing to lend you money.

How Many Points Will Your Credit Score Decrease When a Collections Account is Added to Your Credit Report?

A collections account can decrease your credit score by more than 100 points. As such, you should pay all of your credit cards, loans, and other bill payments on time to avoid having a collection account being added to your credit report. Collection accounts can have a significant impact on your credit score because they tell future lenders that you failed to pay a monetary obligation that you had. Some lenders will refuse to lend you money until your collection accounts are paid off. That said, paying off a collection account will not increase your credit score. Only removing the account from your credit report will increase your credit score.

Removing a Collections Account From Your Credit Report

Removing a collections account from your credit report is the only way to stop it from immediately impacting your credit score. If you are unable to remove a collections account from your credit report, you will have to wait for 7 years until it’s automatically removed from your credit report.

So, how do you remove a collections account from your credit report?

You will only be able to remove a collection account from your credit report if the collection account does not belong to you or there is some incorrect information associated with the account.

If there is some incorrect information being reported on the collection account or the account does not belong to you, you can have it removed by filing a dispute with the credit reporting bureau to have the collection account removed from your credit report.

After you file a dispute, the credit bureau will conduct an investigation. If the investigation reveals that the collection account contains inaccurate information or that it does not belong to you, they will remove it from your credit report.

If the collection account is removed from your credit report and your credit report is otherwise good, you will notice a significant boost in your credit score.

How Long Does a Collection Account Remain On Your Credit Report For?

According to the Fair Credit Reporting Act (FCRA), a collection account will remain on your credit report for up to 7 years from the date that you first became delinquent on repaying your debt. For example, if you missed your credit card payment on January 1st, 2021, and your account was later sent to collections, a collection account can remain on your credit report until January 1st, 2028. A collection account will only be removed earlier if you successfully dispute it with the credit bureau reporting it, or you negotiate with the collection agency to have it removed in exchange for repayment of the debt.

Credit Score Planet Frequently Asked Questions (FAQs)

1. Can paying off collections raise your credit score?

No, paying off a collections account will not raise your credit score. This is so because current FICO scoring models treat paid and unpaid collections accounts the same. As such, if you believe that paying off a collections account will improve your credit score, you are mistaken.

2. How long does it take for credit score to go up after paying off collections?

Your credit score will not go up if you pay a collections account, it will likely remain the same.

3. How do I get a collection account removed from my credit?

You can contact a collection agency and negotiate paying a collections account in exchange for them to remove it or you can file a dispute with the credit bureau reporting the collection account in an attempt to remove it from your credit report.

4. Can I get a collection account removed without paying it?

You may be able to have a collection account removed from your credit report without paying it by disputing it with the credit bureaus. However, to have a collection account removed, you must have valid grounds for removal, such as the collection account not belonging to you or that there is some incorrect information associated with the collection account warranting its removal.