Does Paying Collections Help Credit Score?

When you are behind on your bills, one of the biggest decisions you have to make is whether or not to pay collections.

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This can be a tough choice, especially if you don't have money to spare.

If you’re looking for credit repair companies in Dallas, Texas, or trying to understand if locking your credit report helps, you might want to know whether or not paying collections improves your credit score–let’s dive in.

What Is a Collection Account?

A collection account is a debt that has been sent to a collection agency. When you don't pay your bills, the creditor will eventually stop pursuing you directly and send the debt to a collection agency. The collection agency will then try to collect the debt from you.

Collection accounts can stay on your credit report for up to seven years, even if you pay them off. This is one of the reasons why it's so important to try to avoid collections in the first place.

Why Are Collections Bad for Your Credit Score? 

When you have unpaid collections, it is a sign to lenders that you are not good at managing your finances. This can make it difficult to get approved for loans or credit cards in the future.

Collections can also cause your credit score to drop significantly because collection accounts are considered to be high-risk by the credit bureaus. If you have multiple collections, they will collectively have a greater negative impact on your credit score than just one. 

Does Paying Collections Help Your Credit Score?

In short: yes. When you pay off a collection account, the collection agency will notify the credit bureaus. The account will then be updated to show that it has been paid, which will help your credit score in two ways.

First, it will remove the “unpaid” stain from your credit report. Second, it will show that you are now managing your debt better, which will help improve your credit score over time. However, keep in mind that paying off a collection account will not remove it from your credit report. It will be marked as “paid,” but it will still show up on your report. 

Can You Get Collections Removed From Your Credit Report?

Although there are no guarantees, there are a few things like "pay for delete" and "goodwill deletion," which you can use to try and get collections removed from your credit report.

"Pay for delete" is when you agree to pay the collection agency in exchange for them removing the collection from your credit report–this is not always successful, but it's worth a try. Similarly, "goodwill deletion" is when you write a goodwill letter to the collection agency asking them to remove the collection from your credit report. This is usually only successful if you have a history of good credit and the collection is an isolated incident.

Should You Settle or Pay Your Collections in Full?

If you have the money to pay off the debt in full, that is usually the best option. This is because once you pay your debts in full, your collections will show as “paid in full” on your report, which gives a positive impression to your future lenders. 

However, if you can't afford to pay off the debt in full, you may want to try settling it for less than what you owe. Keep in mind that doing so will change the status of your “unpaid” collections to “settled.” Although it's not ideal, it's still better than leaving your dues unpaid.

Bottom Line

Paying collections will help your credit score in the long run and show future lenders that you are managing your debt. Although it's not easy, try to pay off your debts in full, and if you can't, try settling the debt for less than what you owe. 

Whatever you do, don't ignore your collections. This will only make things worse in the long run. If you're struggling to pay off your debts, there are many resources available—seek out professional help if you need it, or reach out to a reliable credit repair specialist like The Phenix Group for guidance.

Wondering how much credit repair is a month in Dallas? Take a look at our recent article.

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