Edited by: Juan Ruiz
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You paid off a collection account, but it’s still haunting your credit report. What gives?
It’s a good idea to pay off collection accounts, but the fact is that even paid collection accounts can stay on your credit report for up to 7 years from the date of the first delinquency.
Although paid collection accounts dragging down your score can be a frustrating fact, you may be able to get these accounts removed from your credit report.
Here are your primary options for removing these accounts from your credit report:
- Request validation of the debt.
- Negotiate a pay-for-delete agreement.
- Write a goodwill letter.
- Dispute the collection with the credit bureaus.
- Wait for it to fall off.
Let’s look at the impact of paid collections on your credit report and management options.
What Happens When a Collection Is Paid Off
A collection account will be marked as paid on your credit report when you pay it off. It will indicate whether you paid the account in full or settled for less than the full amount.
Even when your account is paid off, it stays on your credit report for up to 7 years from the date of the first delinquency, which is when you fell behind on the account.
You shouldn’t need to notify the credit bureaus of paid-off accounts, as the creditors or collection agencies should do that. If your credit report isn’t updated, you can dispute the inaccuracy.
A paid collection account on your credit report can hurt your credit score, depending on the credit scoring model. That affects your ability to obtain credit products such as credit cards and loans at the best rates. On some of the most recent credit scoring models, paid collection accounts don’t hurt your credit score at all, though unpaid ones do.
But even if it’s a ding on your credit report, a paid collection is better for your credit than an unpaid collection account. Paying a collection shows you’ve taken responsibility for the debt and paid it off.Hot Tip:
The impact of a paid collection on your credit report will diminish over time. The more time that passes since you paid off the account, the less it will impact your credit score — especially if you continue making timely payments on your other accounts.
The Benefits of Paying Off Collection Accounts
There are several benefits to paying off collection accounts:
- Improved Credit Score: Paying off collection accounts can help improve your credit score. Even though the collection account will still appear on your credit report for up to 7 years, having a paid collection account is better than having an unpaid collection account.
- Reduced Risk of Legal Action: If a collection account remains unpaid, the creditor may take legal action against you. Paying off the collection account can reduce the risk of being sued and facing legal consequences.
- Fewer Collection Calls and Letters: When you have an unpaid collection account, you can expect to receive a surplus of calls and letters from debt collectors demanding payment. Once the account is paid off, the calls and letters should stop.
- Easier Approval for Credit: If you have unpaid collection accounts, lenders may hesitate to extend you credit. Paying off collection accounts can help demonstrate to lenders that you are responsible for your debts, making it easier to get approved for credit in the future.
- Better Financial Peace of Mind: Unpaid collection accounts can be a source of stress and anxiety. Paying them off can give you a sense of relief and knowing that you have taken steps to address your debts.
Read our guide to charged-off accounts to learn more about how these accounts affect your credit.
Does Paying Off Collections Improve Your Credit Score?
Paying off collections can improve your credit score. The extent to which it will improve your score depends on various factors, including the type of collection, how old it is, and how many other negative items are on your credit report.
In general, paying off a collection account will result in a positive change in your credit report, as it will be updated to show that the account has been paid in full. This will result in a more favorable credit report and may lead to an improvement in your credit score.
However, paying off a collection account does not guarantee an immediate or significant improvement in your credit score, as derogatory accounts such as collections aren’t the only factor influencing your credit score.
Your credit score is based on many factors, including payment history, credit utilization, length of credit history, and types of credit used.
When you pay off a collection account, continue to make timely payments on your other accounts, maintain a low credit utilization ratio, and avoid negative credit behaviors to improve your credit score over time.
How Long Does a Paid Collection Stay On Your Credit Report?
A paid collection account will typically remain on your credit report for up to 7 years from the date of the original delinquency, which is the date you first fell behind on the account.
Even after you pay off the collection account, it will still be listed on your credit report for up to 7 years. However, having a paid collection account is generally viewed more favorably by lenders than having an unpaid collection account.
The impact of a paid collection account on your credit score will diminish over time, especially if you maintain a positive credit history by making timely payments on your other accounts and avoiding new negative credit events.
Eventually, the paid collection will drop off your credit report altogether after the 7-year reporting period expires.
Removing a Paid Collection From Your Credit Report
If you have a paid collection account on your credit report, there are steps you can take to try and remove it from your credit report.
- Request Validation of the Debt: You have the right to request validation of the debt from the collection agency. It must provide you with written proof that you owe the debt.
- Negotiate a Pay-for-Delete Agreement: Before you pay off the collection account, negotiate with the collection agency to have them remove the account from your credit report in exchange for payment. Get any agreement in writing before making payments.
- Write a Goodwill Letter: If you’ve already paid off the account and didn’t get a pay-for-delete agreement, you can still use a goodwill letter to request that the collection agency remove your resolved account from your credit report.
- Dispute the Collection With the Credit Bureaus: You can dispute the collection account with the credit bureaus if you believe there are errors or inaccuracies. The credit bureaus will investigate and remove the account if it is invalid.
- Wait for It To Fall Off: Collection accounts typically stay on your credit report for up to 7 years from the original delinquency date. If you have already paid the account, it will remain on your report for up to 7 years but will be marked as paid.
Can You Dispute a Paid Collection?
Yes, you can dispute a paid collection account if you believe it is inaccurate or has been reported in error.
To dispute a paid collection account, you should first request a copy of your credit report from the 3 major credit reporting agencies: Equifax, Experian, and TransUnion. Review your credit report carefully and look for any errors or inaccuracies, such as incorrect account balances, incorrect dates, or accounts that do not belong to you.
If you find an error or inaccuracy, follow these steps:
- Write a dispute letter to the credit reporting agency reporting the error. In your letter, explain the nature of the error and provide any supporting documentation that proves your case. Include your full name, address, and account number(s) associated with the disputed information.
- Send your dispute letter by certified mail with a return receipt requested so you have a record of when the letter was received. You can also submit your dispute online through the credit reporting agency’s website.
- Once the credit reporting agency receives your dispute, it will investigate the disputed information with the creditor or collection agency that reported it. If the information is inaccurate, the credit reporting agency will correct or remove it from your credit report.
- Suppose the investigation results do not support your claim. In that case, the credit reporting agency will send you a letter detailing the results of the investigation and their reasons for not making any changes to your credit report. You may still be able to request that a statement of the dispute be added to your credit report to explain your side of the story.
You can’t dispute accurate information. You can still try to negotiate with the creditor or collection agency to see if it will remove the collection account from your credit report as a goodwill gesture.
What To Do With a Paid-off Collection Still on Your Credit Report
If a paid-off collection is still on your credit report, you should first check the date of the last activity and the date of the original delinquency. The date of last activity is the date when the debt was most recently reported to the credit reporting agencies. In contrast, the date of the original delinquency is the date when you first fell behind on the account.
A paid-off collection account can remain on your credit report for up to 7 years from the date of the original delinquency. If the collection account has been on your credit report for more than 7 years, you can dispute it with the credit reporting agency to have it removed.
If the collection account has been on your credit report for less than 7 years and you have paid it off, it should be updated to show that the account has been paid in full. However, it may take some time for the credit reporting agencies to update your credit report.
If the account hasn’t been updated after 1 or 2 months, contact the creditor or collection agency to request reporting the account as paid in full to the credit reporting agencies. You can also request that the agency send you a letter confirming that the account has been paid in full.
How To Remove Collections From a Credit Report Without Paying
It is not typically possible to remove collections from your credit report without paying the debt unless there are errors or inaccuracies in the reported information.
However, there are a few things you can try:
- Dispute the Collection Account: If errors or inaccuracies exist in the reported information, you can dispute the collection account with the credit reporting agency reporting the error.
- Negotiate With the Creditor or Collection Agency: You may be able to negotiate with the creditor or collection agency to have the account removed from your credit report in exchange for payment in full or a settlement amount. However, this is not a guaranteed solution and may not work in every situation.
- Wait for the Collection Account To Fall Off: Collection accounts typically remain on your credit report for up to 7 years from the original delinquency date. If the account is close to falling off your credit report, you may choose to wait it out rather than pay the debt.
Not paying a debt you legitimately owe can have serious consequences, such as legal action, wage garnishment, and damage to your credit score. It is always recommended to try to pay off your debts or work out a payment plan with the creditor or collection agency.
How To Negotiate Pay-for-Delete
Negotiating a pay-for-delete agreement with a collection agency can be a good way to minimize the impact of a collection account on your credit report. Here are some steps to follow:
- Negotiate the Payment Amount: You can try to negotiate a lower payment amount, but be aware that the collection agency is not obligated to accept your offer. If you negotiate a lower payment amount, ensure that the agreement includes language that the account will be deleted from your credit report in exchange for the reduced payment.
- Get the Agreement in Writing: Once you have negotiated the terms of the pay-for-delete agreement, make sure that the agreement is in writing and that you keep a copy for your records.
- Make the Payment: Once you have the written agreement, make the payment according to the terms of the agreement.
- Follow Up: After making the payment, follow up with the collection agency to ensure that it has deleted the account from your credit report. It’s a good idea to check your credit report periodically to ensure the account has been removed.
Remember, not all collection agencies will agree to a pay-for-delete agreement, and there is no guarantee that the agreement will be honored, even if you have it in writing. However, it’s always worth trying to negotiate, especially if the collection account is having a significant negative impact on your credit score.
Writing a Goodwill Deletion Letter for Paid Collection
A goodwill deletion letter requests a creditor or collection agency to remove a negative item from your credit report as a goodwill gesture.
Here is an example of a goodwill deletion letter for a paid collection:
[City, State ZIP Code]
[Collection Agency or Creditor’s Name]
[Collection Agency or Creditor’s Address]
[City, State ZIP Code]
Dear [Collection Agency or Creditor’s Name],
I am requesting a goodwill deletion of the collection account [Account Number] from my credit report. This account was paid in full on [Date], and I would appreciate your assistance in removing it from my credit report.
As you know, a paid collection can remain on a credit report for up to 7 years, even after it has been paid in full. I understand that this account was reported accurately. Still, I am requesting your help in removing it from my credit report as it is negatively impacting my credit score and financial well-being.
I have taken steps to improve my financial situation and am committed to maintaining responsible financial behavior moving forward. I hope you will consider my request and remove this account from my credit report.
Thank you for your time and consideration in this matter.
What To Do After You Pay Off a Collection Account
Congratulations on paying off your collection accounts! Here are some steps you can take next:
- Verify That the Accounts Have Been Updated: Check your credit report to ensure that the collection accounts have been updated to reflect that the accounts are paid in full or settled. You can dispute the information with the credit reporting agencies if the accounts haven’t been updated.
- Monitor Your Credit Report: Continue to monitor your credit report to ensure that the collection accounts have been updated and no new negative information has been added. You can get a free copy of your credit report once a year from each of the 3 major credit reporting agencies at annualcreditreport.com.
- Build Your Credit: Building your credit is an ongoing process. You can start by making sure you are paying all of your bills on time and in full, keeping your credit utilization low (using less than 30% of your available credit), and avoiding opening too many new accounts simultaneously.
- Consider a Secured Credit Card: If you are having trouble getting approved for traditional credit cards, you may want to consider secured credit cards. These cards require a security deposit but can be a good way to start building or rebuilding your credit.
- Be Patient: It takes time to rebuild your credit after a collection account, but your credit score will improve with responsible financial behavior.
Paying off your collection accounts is a big step toward improving your financial health, but it’s only a part of the process. By making responsible financial decisions, you can build a strong credit history and achieve your financial goals.
While it can be disheartening to accept that collection accounts may not disappear from your credit report for up to 7 years, even if you pay the accounts in full, it’s often still worth paying off derogatory accounts. In doing so, you can lessen the effect of the collection account on your credit score, get off the hook for legal trouble, and may have options for negotiating a deletion of the account from your credit report.
Featured Image Credit: alswart via Adobe Stock
Frequently Asked Questions
In general, paid collection accounts can remain on your credit report for up to 7 years from the date of the original delinquency. However, a collection account may be removed sooner if you dispute inaccurate information or negotiate a pay-for-delete agreement with the collection agency. The impact of the collection account on your credit score will diminish over time as it ages, and you demonstrate responsible financial behavior moving forward.
Your credit score can go down when you pay off collections. If the collection account is reported as “paid in full,” your credit score may not negatively impact or improve slightly. However, if the collection account is reported as “settled” or “paid for less than the full amount,” your credit score may be negatively impacted. This is because settling a debt for less than the full amount indicates that you did not fulfill the original agreement and may suggest to lenders that you are a higher credit risk. In general, it’s always a good idea to negotiate a pay-for-delete agreement with the creditor or collection agency, where they agree to remove the negative account from your credit report in exchange for payment in full. This can help minimize the impact of the collection account on your credit score.
Great job! After you’ve paid off a collection account, verify that the account has been updated by checking your credit report from each of the 3 credit bureaus. Continue working on your credit by making payments on time and in full, keeping your credit utilization low (using less than 30% of your available credit), and avoiding opening too many new accounts simultaneously. If you need to build credit, consider a secured credit card.
Removing a collection account is better, as even a paid-in-full derogatory account can negatively impact your credit score for up to 7 years.
Debt goes into collection status when you don’t pay your bills as agreed. A creditor may send your account to a collections agency when you haven’t paid your bill for a few months.
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