Does paying off collections improve credit score

does paying off collections improve credit score

Those who have ever struggled with paying bills on time may have experience with collections accounts. And they are not alone; 71 million American adults had debt in collections reported on their credit records in 2017.1 If you fail to keep up with your monthly payments or default on a loan, the original creditor may send your bill to a debt collection agency. Any debt, whether from private, auto, or mortgage lenders, may be sent to collections if left unpaid. 

There are 6,345 debt collection agencies and businesses in the US as of 2023.2 Debt collectors constantly buy overdue or delinquent accounts and often report their actions to the three major credit bureaus. Credit bureaus then take that information to use for your credit reports. Unfortunately, unpaid collection accounts can have a pretty negative effect on your overall credit. But, once you’ve paid the debt collector and the delinquency is removed from your credit report, you may start to see a change. 

Will Paying off a Collection Account Affect Your Credit Reports Positively?

Will paying off a collection account affect your credit reports positively? While the answer is generally yes, there are a few exceptions. For example, if you have accounts with multiple collection agencies, you may have to pay off more than one account before you see a boost in your score. 

But usually, paying off your account with a collection agency will positively affect credit reports. 

What Is a Credit Score and Report?

Credit scores are a three-digit number meant to represent your financial history and responsibility to lenders and other financial services companies. A credit reporting agency or major credit bureau collects information regarding your financial habits and behaviors and uses that data to compile your credit report. Your credit report consists of a breakdown of those various habits and behaviors as well as your credit score. You will have three credit reports, one from each bureau.

According to newer credit scoring models, the five main factors that contribute to credit scores are: 

Credit Score FactorsDescription
History of Your PaymentsReflects your track record of making on-time payments, including any late payments or defaults.
Length of Credit HistoryConsiders the age of your oldest and newest credit accounts, as well as the average age of all accounts.
Credit MixExamines the variety of credit types you have, such as credit cards, loans, and mortgages.
New Credit InquiriesRefers to the number of recent inquiries into your credit report, which may indicate new credit applications.
Amount of DebtTakes into account the total amount of debt you owe, including credit card balances and loans.

Most lenders will reference an applicant’s credit report before approving them for funding. Typically, people who have a higher credit score find themselves eligible for loan perks like low rates and increased loan amounts. However, this doesn’t mean that people with low scores can get a good deal on a loan. 

What Is the Most Significant Factor for Credit? 

Lenders consider other financial elements such as income and potential collateral when approving borrowers; otherwise, good credit history is often a pivotal deciding factor.  

Your payment history on your credit accounts, such as personal loans, installment loans, or payday loans, is the most significant factor that goes into credit scores. 

When you pay off any kind of debt, like bad credit loans or even collection accounts, this action bodes well for your payment history. Paid accounts also mean the amount of debt you have accumulated is getting lower, which is also good for your overall credit. 

Can I Have a Paid Collections Account Removed From Credit Reports?

The only way to remove collection accounts from your credit report is to take care of the unpaid debt. Once you pay off the balance, the debt collector will contact credit agencies to inform them of your debt repayment status. While paying off the debt will not completely remove the history of the collection account, agencies, and financial institutions can still see that the debt is taken care of. 

Fortunately, paid collections generally affect credit scores and credit reports positively. So, there is a good chance you’ll see improvement in your credit report over time. 

Settling Versus Paying a Collection Account in Full 

There are two different ways to take care of your unpaid collections debt; settling or paying in full. While both of these methods will absolve you from making further payments, they will affect credit reports in different ways.

When you settle your debt, the balance will reach zero, but there will be a note on your credit report specifying that you did not pay off the debt yourself. So while your debt is taken care of, the action is still considered a negative item and may make lenders view you as a financial risk. 

When you pay off your collection account, lenders and financial institutions can see on your credit report that you were responsible for your debt and took care of it on your own. Therefore, it is always best to pay off debt with your own funds if you can. 

What Did My Credit Score Drop When I Paid off Collections?

On rare occasions, individuals who pay off collections may see a dip in their credit score on their credit report initially. For example, say your credit card was your very first financial account, and you, unfortunately, racked up some credit card debt that got sent to collections. 

If you paid off that collections account and closed your credit card, you might see your credit score get a bit lower. This is because closing a credit card can affect credit if the credit card account is one of your oldest financial accounts. 

Similarly, individuals whose collection account is one of their first financial accounts may see a dip in their score once they pay their balance off. However, continue to stay consistent with your other bills and expenses and avoid collections accounts in the future. You should see your score stabilize. 

How Long Does It Take for Paid Collection Accounts To Come Off Your Credit Report? 

Depending on when you make your last payment will determine how long collection accounts stay on your credit report. Generally, negative items like a missed payment or delinquent account will remain on your reports for up to seven years. But the longer you have your collection account, the longer it will stay as a negative item on your credit report. 

To avoid having a delinquent account on your credit for longer than necessary, the debt agency must be able to collect payment as soon as possible. If you are paying off multiple forms of debt, you should prioritize debt with the collections account while staying on top of the minimum amounts due for your other bills and expenses. 

How to Avoid Collections in the First Place

It is also important to remember that there are several ways you can avoid a credit account going into collections. Here are steps and strategies to help you prevent an account from going into collections:

Timely Payments

This is the most obvious and effective strategy. Always pay your bills on time. Setting up automated payments or reminders can help you avoid missing due dates.


Create a monthly budget to ensure you always have enough funds to cover your bills. Prioritize essential bills such as mortgage, utilities, and credit card payments.

Stay Informed

Frequently review your account statements, bills, and any correspondence from creditors to ensure you’re aware of any outstanding balances.

Communication with Creditors

If you foresee that you won’t be able to make a payment, contact your creditor immediately. Most creditors prefer to work with you rather than send your account to collections. They might be willing to set up a payment plan, temporarily lower your interest rate, or offer other solutions.

Seek Counseling

Credit counseling agencies can provide guidance on managing your debts and might help you negotiate with your creditors.

Keep Track of Your Credit Report

Regularly review your credit reports for any discrepancies or errors. If you spot an account that you don’t recognize or a reported missed payment that’s incorrect, address it immediately.

Understand Your Accounts

Be aware of the terms of your credit accounts. Some loans, like balloon loans, have large payments due at the end, which can catch borrowers by surprise.

Avoid Overextending Yourself

Only take on credit that you know you can repay. While it might be tempting to open a new credit card or take on a loan, think about the long-term implications and whether you can handle the additional monthly payment.

Consider Credit Alerts

Some services offer alerts that inform you when a payment is due when your balance is high, or if suspicious activity occurs on your account.

FAQS About Paying Off Collections

How do the new credit scoring models treat collection debt?

Newer credit scoring models may weigh medical debt in collections differently than other types of collections, often being more lenient towards medical collections. It’s essential to check with the specific model to understand the exact impact.

Does a paid medical collection debt improve credit scores?

Yes, paying off a medical collection debt will generally have a positive impact on your credit scores, especially with newer credit scoring models, which may view medical debt more favorably than other types of debt.

Can debt collectors report unpaid medical debt to the bureaus?

Yes, debt collectors can report unpaid medical debt to credit reporting agencies. However, they usually have to wait a specific period (typically 180 days) from when the medical service was provided before doing so.

Are there any rights that I have from debt collection agency companies that I should be aware of?

Consumers Absolutely have debt collection rights. The Fair Debt Collection Practices Act protects consumers from abusive or deceptive practices by debt collectors. It’s essential to be aware of these rights, like the right to verify the debt and the right to request the debt collector only contact you in specific ways.

Do all collection agencies report to the three major credit reporting agencies?

Not all collection agencies report to all the consumer bureaus. It depends on their reporting practices and relationships with the bureaus. It’s crucial to check your credit reports regularly to see which collections affect your report.

Can I get free credit scores as well as a free credit report?

Yes, many online platforms and credit card issuers now offer free credit scores to their users. While you’re entitled to a free credit report annually, the provision for free credit scores varies by service.

If I have multiple credit accounts in collections, how will this impact my credit score?

Multiple credit accounts in collections can significantly lower your credit score. Each account can be reported to the three major credit bureaus, further impacting your score with each negative mark.

A Word From CreditNinja

Paying off collections can impact your credit score, but how much it improves depends on various factors, including the scoring model being used and the rest of your credit profile. 

Before paying off a debt collector, it is extremely important to make sure you verify that the debt is yours. Ask for a debt validation from the collection agency or debt collector. There are cases where people are contacted for debts that aren’t theirs or that they’ve already paid. 

You should also know that there is also a statute of limitations for civil action regarding debt collection, which can vary from state to state. For example, in California, debt collectors have four years to take legal action.

Additionally, the last thing you should be aware of is your rights. The Federal Trade Commission (FTC) website provides detailed information about these practices, ensuring that consumers are aware of their rights when dealing with debt collectors. 

Looking for other tips on how to improve credit scores and better your overall financial health? Check out the helpful CreditNinja blog for more free information!


  1. 71 million US adults have debt in collections | Urban Institute
  2. Debt Collection Agencies in the US – Number of Businesses | IBISWorld

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