This can go a long way in the enhancement of your credit rating because clearing collection accounts from your credit report is often quick and easy. However, clearing a credit card or loan and receiving a bill collector or collection agency for payment will not improve your score instantly. Here are the key items you will want to know regarding the impact of paying collections on your credit.
If you have outstanding debts that have been collected by a collection agency, there are different ways in which your score will be impacted depending on whether you are paying collections or not.
This shows how your payment history and the outstanding debt play a major role in determining your credit score. When an account gets to the state of collections, it has often been significantly late, which will also harm the payment history. Paying off the debt means that it is cleared and this means that the late payments that had led to the collections status are not removed.
Furthermore, the first credit card company probably charged off and closed an account once it was forwarded to the collection agency. But even if you pay the money to the collection agency, the credit info of the late payments as well as the closed account, will remain in your credit report for up to 7 years from the first delinquency date.
Having said that, paying collections can be the first step to begin repairing credit. Negative information, however, will remain in your credit file for a certain period, and over time, it will affect your score to a lesser degree. Paying collections also prevents the debt from being sold to another collection agent, which will cause further damage to your credit score.
Ways of Deletion of Paid Collections from Credit Reports
Paying collections would not directly lead to an increase in credit score but there are ways to remove the accounts that you paid from your credit reports. Here are a few methods that may work:
Goodwill deletion: You also have the option to contact the collections agency and tell them that you have already paid your dues and would like them to delete the listed account. If it is a long-established relationship with the company, it may agree. This should be in writing before any such deletions are made to avoid any conflict that may arise in the future.
You can also write a letter to the collections agency informing them that the debt has been paid and you would like them to delete the account from your credit report. You may be lucky to get it if you are a previous or long-time client of the company. Always, if possible, obtain a written signed consent from the client before the deletion process begins.
Pay-for-deletion: While it is still considered as an option a lot of the time, it is possible to talk to the collections agency into removing the item if some repayments are to be made. First of all, make it only when you receive a written agreement to this matter, and second, pay only when the item in question is deleted.
While not strictly legal, it is possibly the best way to get the item removed in exchange for payment, as you may be able to negotiate with the collections agency. Ensure that any agreement concerning the deletion of your information is put down on paper first and only make the payment once the deletion process is complete.
Dispute inaccurate information: When it comes to errors or outdated information that may be listed in collections entries, one can dispute it through credit bureaus. If the agency cannot verify it, it may get removed, it is also important that it can be updated very frequently.
There is no other way to delete collections apart from waiting for 7 years for them to be removed by default. One may also seek to bargain with other buyers who have obtained the account to delete the account when payment is made.
In addition to these, there are other ways through which paying collections is helpful to your credit.
While paying off collections accounts alone won’t drastically raise your credit score, it can still benefit your credit in a few key ways:
1. Prevents further late payments: This is because once it goes to collections, the original creditor, for a fact, writes off the amount hence you do not owe them the money directly. Nevertheless, the outstanding balance with the collection agency remains unpaid and may become even more delinquent until you address the issue. It avoids incurring new penalties for lateness that would harm your credit position even further.
2. Shows responsibility: Even if you have paid your collection accounts, having them in any form tells future potential lenders who may be willing to offer you credit that you have had some issues repaying your debts in the past. At least making payment for collections proves that you now have the willingness and financial capacity to pay off debts responsibly.
3. Allows access to new credit: The accounts that have been taken to collections are a problem because they hinder an applicant’s ability to secure new financing. After all, creditors consider applicants with collections as higher risk. Removing this barrier enables one to access credit in the future by clearing the outstanding balance on their credit card.
4. Stops collections calls: Delinquent accounts often cause repeated and persistent calls from collectors demanding money. The constant receipt of these calls entails that paying off the debt will put an end to it. Erasing the collections from your credit report also stops the possibility of further selling the debt to a new agency and makes you answer phone calls.
5. Enables mortgage approval: All kinds of mortgage lenders agree with the notion that collections must be cleared before any funding can be provided. Paying collections aids in the achievement of this prerequisite for purchasing homes.
Let Paid Accounts Work Within the Right Time Frame for This Score
Simply put, having a collections account paid does not work very well to increase your credit score in the short term. However, it helps you to build a potential for future score increase by avoiding adding fresh negative data and eliminating obstacles to new credit lines.
After the payment is made, the collections entry does not reduce your score in the same manner as it did when it was made; indeed, your score can begin to recover slowly over the months after the payment. While older versions of FICO scoring models only look at paid collection accounts as less negative after two years since the account was delinquent. FICO 9 is recent and it is even more lenient in terms of scoring and paid collections are down for less time.
Such changes should be made gradually and patiently, waiting for the benefits to be seen in the next year or two. At the same time, it is possible to focus on the generation of new positive information and optimize the use of the credit history by maintaining the existing accounts and building a diverse credit portfolio. When you pay collections with rebuilding credit, the two go hand in hand to ensure your score starts improving again.
Call now for expert credit repair services: (888) 803-7889
Read More:
What is late payment forgiveness?
Does credit repair really work?
Is it better to pay off collections or charge offs?
Can Lexington Law remove negative?
How fast can credit repair work?
