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Home Debt How Many Points Will My Credit Score Increase After I Pay Off Collections?

How Many Points Will My Credit Score Increase After I Pay Off Collections?

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At a glance

Exactly how many points your credit score will increase after you pay off your collections depends on your credit history and the scoring model used.

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Written by Yi-Jane Lee

Reviewed by Victoria Scanlon

Apr 13, 2022

Fresh advice you can trust

We promise to always deliver the best financial advice that we can. Our writers and editors follow strict editorial standards and operate independently from our advertisers and affiliates. Learn more about how we make money.

If you’ve decided to pay off your debts in collections, congratulations—it’s a big (and important) step in rebuilding your credit.

It’s understandable if you’re wondering exactly how much your score will improve after paying off each collection account. Unfortunately, the answer to that is complex and depends on several important factors.

Table of Contents

  1. How much will my credit improve after paying off a collection account?
  2. How long will it take to see improvement after you pay off collections?
  3. Is it a good idea to pay off debts in collections?

How much will my credit improve after paying off a collection account?

It’s true that paying off debts in collections can improve your credit score, often to a significant degree. The Consumer Financial Protection Bureau (CFPB) notes that in many cases, a single collection account can lower your score by anywhere from 45 to 125 points. You’ll often see an equivalent jump in your score (i.e., a complete recovery) after you pay the debt off. 1

However, the exact impact paying a collection will have on your credit score depends on three factors:

  1. What credit scoring model your lender uses
  2. Your overall credit profile
  3. Whether you settle your debt or pay it in full

Let’s look at those factors in detail.

1. What credit scoring model your lender uses

First (and most importantly), the impact of paying off a collection account depends on what credit scoring model your lender uses when they run your credit. There are dozens of different scoring models, and your lender is free to pick whichever one they want.

Newer credit scoring models, such as FICO 9, VantageScore 3.0, and VantageScore 4.0, don’t penalize you in any way for collection accounts that have been fully paid off. 2 This means that when you pay off collections in those models, your score will make a full recovery.

In other words, your score will increase by however many points the collection account was lowering it by (often between 45 and 125 points, as we said above).

On the other hand, some older models, such as FICO 8, continue to penalize paid collections just as much as unpaid ones. Unfortunately, that means that paying off your debt won’t raise your score at all in those models unless you remove the paid collection account from your credit report.

Special cases: very small collection accounts

Some FICO and VantageScore models also overlook collections that were originally worth less than a certain amount, regardless of whether they’re paid or unpaid (e.g., balances below $100 in FICO 8 and 9, and below $250 in VantageScore 3.0). 3 4

Paying off small “nuisance collections” won’t raise your score at all in those models, but it doesn’t need to, because it’s impossible for those collections to damage your score in the first place.

2. Your overall credit profile

The higher your credit score, the more a single negative mark will damage it. As you might expect, this means that the higher your score was before having the debt sent to collections, the more you stand to gain by paying it off.

This is responsible for the wide range (45–125 points) that we gave above. As the CFPB notes, if your score was 780 before you received the collection account, paying it off could raise your score by a full 105–125 points.

On the other hand, if your original score was around 680, paying it off might boost your score by just around 45–65 points, and lower scores will receive even less of a boost.

3. Whether your debt is considered “settled” or “paid in full”

If you pay off your debt for less than what you owe (a practice known as debt settlement), then the “settled” debt will continue to hurt your credit score, even in the newer scoring models that ignore paid collection accounts.

Settling a collection account causes your score to improve somewhat, but it won’t recover completely. This is because the credit scoring companies want to incentivize people to pay their debts in full.

How long will it take to see improvement after you pay off collections?

Any improvement that you get from paying off a collection account will appear when your credit score is updated. This happens once your creditor or the debt collection agency handling your debt notifies the credit bureaus that you’ve paid the account. This typically occurs every 30–45 days, but the exact reporting dates and reporting cycle can vary. 5

Paid collections remain on your credit report for up to 7 years

Under the Fair Credit Reporting Act, most collection accounts can stay on your credit report for up to 7 years, even after they’ve been paid. 6 This means that even if paying off a collection improves your credit score, the account will still be visible to lenders, which could influence your eligibility for various types of credit.

Is it a good idea to pay off debts in collections?

Yes, paying off your debts in collection is usually a good idea, regardless of how much doing so improves (or doesn’t improve) your credit score.

Paying off collections has three other benefits:

  • Less to pay overall: Your debt can still accumulate interest when it’s in collections, even if it’s been transferred or sold to another company. In fact, depending on the debt in question and what state you live in, it’s possible that your debt collection agency will be able to increase your interest rate beyond what you agreed to in your contract with your original creditor. Paying off your debt quickly usually means you’ll pay less overall. 7
  • Better chances of loan approval: Even though paid collections are still visible to lenders viewing your credit reports, they look better than unpaid collection accounts because they show that you made an effort to honor your financial obligations.
  • No risk of lawsuits: If you ignore your debt collectors, they may file a lawsuit against you. You could receive a court judgment as a result, entitling them to collect payments by garnishing your wages or freezing your bank account. They’ll be able to sue you over the account until it becomes a time-barred debt once the statute of limitations on debt in your state has passed. Paying off your debt eliminates this risk of lawsuits.

Takeaway: How many points you’ll gain from paying collections depends on the scoring model used and your credit history.

  • Your credit score won’t necessarily improve after you pay off collections. Whether it will depends on the scoring model used and whether you pay in full or settle your debts.
  • The score impact of receiving a collection account (and paying it off) is generally greater if you had a higher credit score to begin with.
  • Any credit score improvements that may occur after you’ve paid off a collection account will appear when your credit report is updated, usually after 30–45 days.
  • A few benefits of paying off collections include paying less in interest, increasing your likelihood of securing new loans, and avoiding lawsuits.

Article Sources

  1. Consumer Financial Protection Bureau. "Here’s how medical debt hurts your credit report" Retrieved April 13, 2022.
  2. Experian. "Can Paying off Collections Raise Your Credit Score?" Retrieved April 13, 2022.
  3. Experian. "What Types of Debt Can Go to Collections?" Retrieved April 13, 2022.
  4. VantageScore. "13 Ways Credit Scores Have Changed in the Past 20 Years" Retrieved April 13, 2022.
  5. TransUnion. "“How Long Does it Take for a Credit Report to Update?" Retrieved April 13, 2022.
  6. Federal Trade Commission. "Fair Credit Reporting Act" Retrieved April 13, 2022.
  7. Federal Trade Commission. "Fair Debt Collection Practices Act" Retrieved April 13, 2022.

Yi-Jane Lee

View Author

Yi-Jane Lee is a credit analyst who writes for FinanceJar. Her work covers credit repair, the credit scoring industry, budgeting, and debt. She has a BA from McGill University in Montreal, Quebec.

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