When it comes to managing your financial well-being, your credit score plays a significant role. It affects your ability to secure loans, get approved for credit cards, and even determines the interest rates you’ll pay.
So, if you are looking to improve your credit score, you might be wondering if paying collections will help. Read on to find out more about the ways to eliminate collections and whether or not that helps in repairing your credit.
What Is a Credit Score?
A credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time based on information from your credit reports.
Factors that are typically taken into account by credit scoring models include:
- Your bill-paying history
- Your current unpaid debt
- The number and type of loan accounts you have
How Long Do Collections Stay On Your Report?
In areas with high living costs, such as Pittsburg, many people suffer from low scores. If you are looking for credit repair in Pittsburg, you might be wondering if paying your collections will build your score.
People often believe paying off an account in collections will remove the negative mark from their credit reports. However, this isn’t true–if you pay an account in collections in full, it will show up on your credit reports as ‘paid,’ but it won’t remove the item itself.
In fact, you should expect it to remain on your reports for seven years. The only exception to the seven-year rule is if you have collections due to a medical emergency.
Also, the sharpest drop in your scores will happen when the collections item is first reported to the credit bureaus. Over time, this will have less and less of an impact on your score until the item falls off after the statute of limitations has expired.
Does Paying Off Collections Help?
While paying collections does not mean there will be a significant change in your score, it will most definitely help you in other ways. Here are three of them:
Avoid Legal Action
In case you fail to pay off your collections, the collector could sue you for the money you owe, potentially leading to wage garnishment. Paying off your account in full will help you avoid going to court over the unpaid debt.
Improve Your Image for Future Lenders
While the damage is somewhat done once you have collections on your report, when an account in collections is marked as ‘paid’ on your credit report, you might have a better shot at getting another loan. The majority of mortgage lenders do not want to approve an application when there is an open collections debt on your credit profile.
Avoid Additional Interest
In most states, collectors are allowed to keep charging you interest and fees after they’ve purchased your debt. Paying off your debt quickly can minimize interest costs.
Ways to Eliminate a Collection From Your Credit Score
So, now that you know that collections items stay on your credit report for up to seven years, you might be wondering if there is a way to delete your collections altogether.
One possibility is submitting a ‘Pay for Delete’ letter. If you talk with collections agencies and lenders, they may be willing to delete the collection accounts. The Pay for Delete letter is a formal request to have unfavorable marks deleted in return for cash.
As a second option, you can try drafting a goodwill letter to the original creditor if you already have an overall good credit score with only a single negative record. This is a request to remove the collection item from your report as a gesture of goodwill.
To help on your journey to credit savviness, check out our posts on good versus bad credit and removing paid collections from your credit report!