Paying collection accounts is usually the first place people start when deciding to try to fix damaged credit reports. However, the idea that paying off a collection account will boost a consumer's credit scores is, unfortunately, usually very wrong.

FICO's credit scoring models (the brand currently used by most lenders) were designed to help lenders predict the likelihood of a borrower going 90+ days past due on a loan within the next 2 years. If a borrower is likely to go 90+ days delinquent on an account within the next 2 years then a lender will probably consider the borrower to be a bad credit risk. When you pay off an outstanding collection account, even if a zero balance is reported to the credit bureaus, that does not erase the fact that the delinquency occurred in the first place. Therefore, FICO scoring models will still  typically score you as a bad credit risk, even after you have paid off collection accounts.

It is the occurrence of the delinquency (aka the late payment) which lowers the consumer's FICO scores, not the balance on the collection account. The fact that the delinquency happened is not erased when a collection account is paid. To further illustrate this point, let me ask you a question. Would a $1,000 medical collection, a $100 medical collection, or a $0 medical collection lower your credit scores more (assuming they all were added to your credit reports at the same time)? If you guessed that the 3 collection accounts would likely have roughly the same impact upon your credit scores then you are 100% correct.

Additionally, paying a collection account could accidentally harm your credit scores further due to a deficiency within some older credit reporting systems which might penalize you for "recent activity" on a collection account whenever a payment is made.  Paying an older collection account, which hasn't reported any activity in several years, might make the collection account appear to be more recent in the eyes of these older FICO scoring models and could therefore potentially result in a drop in credit scores. The reason this occurs is because the credit bureaus will update the "date reported" field when the collection agency reports the new balance ($0 if you paid or settled the debt) and when the "date reported" becomes more recent it might damage your FICO credit scores.

However, you do want to exercise caution when it comes to collections since simply ignoring these obligations could come back to bite you as well. If you have a collection account on your report which you know stems from a real financial obligation and you know that the balance is correct, then it may still be in your best interest to try to settle the debt. Unpaid debt can potentially result in being sued, wage garnishment, and judgments.

Remember, if you owe a collection account, you can always try to settle it for a lesser amount and you can even hire a reputable professional to assist you. Paying 100% of the collection will probably not affect your credit scores any more positively than paying a 5o% settlement in full since the account is already derogatory. Neither scenario removes the collection account from your report, so do yourself a big favor and save yourself some money if you choose to settle any collection accounts. Finally, it is very important to always, always, ALWAYS get proof of the settlement and the satisfaction of the account in writing from the collection agency.

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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