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.
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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:
- What credit scoring model your lender uses
- Your overall credit profile
- 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
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.