Does Paying Off Collections Improve Credit Score?
Your Credit Minute Show Notes:
- 00:00 [inaudible 00:00:00] here with Key Credit Repairs. Today we’re gonna answer a simple question which is, will paying off a collection hurt my credit score? Could paying off a collection hurt my credit score? So paying collections, good or bad? So let’s break it down to a science. The question is not as simple as a yes or no. So it’s gonna depend on a couple of things.
- 00:20 So when you pull up your credit report you’re gonna notice a couple of very particular dates, okay? And there’s a difference between them. Okay? You have the date of last activity, okay? And the date, excuse me, the date last reported, okay? So obviously you do wanna pay things, okay, you wanna make sure you’re up to date on all your bills, but let’s say you’ve had a collection that’s fairly dormant. The account is fairly old, okay? Let’s say it’s three years old at this point, and you notice that the date of last activity on that account is 9 of 2014 and then you see the date last reported is 10 of 2018. So that’s typically a debt that is safe to pay off, okay?
- 01:24 And the reason for that is, number one, the date last reported is fairly current, okay? So paying it off isn’t going to drop your score, okay? It’s not a dormant account, it’s an active account, okay? So the reported date is the last time that the collection agency transmitted a signal into the three bureaus.
- 01:40 So here is the collection agency. And they have sent the signals to Equifax, TransUnion, and Experian updating this account, hence the recent date. We’re actually in October of 2018 right now. Okay. The date of last activity though, 9 of 2014, that’s the last time that any money was transacted on this account. So let’s say you made a payment to this debt collector in September of 2014. That’s what you’re gonna see there, okay?
- 02:10 Now, let’s give you another scenario of when you probably might want to question paying back the account, okay? So let’s say the date of last activity, actually, we’ll keep it the same. Let’s say the date of last activity is September of 2014, okay. But, the date last reported is September of 2015. Now this is where it gets a little funky, okay? ‘Cause right now we have a fairly dormant account. That creditor, that collection agency hasn’t reported the item to the um, to the credit agencies in a while, okay? So the information hasn’t been removed but they’re not actively transmitting a signal to the credit agencies. So, where you typically have this, in that last scenario where they’re transmitting that signal, there’s been none of this since September of 2015, okay?
- 03:09 So this is where you’re gonna question paying off this debt. In some rare cases, okay, and this, by the way, is quite rare. With technology these days these accounts are typically updating on an automatic basis every single month. It’s done through automation, no one’s really thinking about it, no one’s hitting a button, okay? But in some rare cases, where you’re paying off a debt that is this old, you’re waking a sleeping giant, okay? And what happens is that date last reported is brought current, the recent derogatory remark is brought current, and you can actually see your credit score drop.
- 03:41 Um, we typically have a 90 day lockout period on all open collections where we tell our clients just hang tight for 90 days. Don’t do anything. Let’s challenge them, let’s request validation on these accounts, let’s make sure if you-if you are gonna pay something, even if you agree with the original debt that you’re paying back the right person, that they’re legitimate, that they can document that they’re licensed to collect on that debt in your state, so on and so forth, and they can follow all the rules and procedures under the Fair Credit Reporting Act and the Faraday Collections Practices Act to protect you. Um, so kind of a mandatory lockout period of 90 days just to make sure everyone’s doing the right thing and everything’s validated, and then at that point you can go ahead and start paying off the debts.
- 04:18 Um, if you wanna talk about a paid for deletion clause in the uh, when you’re paying off the debt or settling it that’s something we can absolutely assist you with.
- 04:26 Guys, this is Nick Tsoukales with Key Credit Repair. Have yourself a great day.