Collection Accounts Affect on Credit Score
Loren McCray
August 11, 2008
Most individuals with bad credit have something in common—collection accounts.
In most cases, people with bad credit want to pay off the collection account. However, if money is tight, it may take some time to get them paid. But, if you do step up and pay off the account, you expect the collection agency to step up also—don't you?
Well, unfortunately, that's not always the case.
Paying off a Collection Account Won´t Increase Your Credit Scores
Even after a collection account is paid in full, and your credit reports show that the collection was paid in full, your FICO credit scores will reap no rewards. They will not increase one point.
This is the reason...
Any instance of a collection account on your credit reports decreases your credit scores. When the collection account appears on your personal credit report, it is an element of your credit history. It is of no significance if the account is paid off or not.
Total Value of Collection Account is of No Importance
It doesn´t matter if the collection account is for $50 for an unpaid cable bill or $5,000 for a plasma television—the outcome is identical—your credit scores will drop by the same amount.
This is an essential topic you must understand. It stands to reason that since the amount is lower, it won't lower credit scores as much. Incorrect.
Every person knows that late payments on a home loan or automobile, which can be hundreds or even thousands of dollars, will hurt your credit. But what everyone does not know is that even if a small $50 balance goes to a collection agency, and it finds it way to your credit reports, it will hurt your credit just as much.
Bottom line: anything from a collection agency that appears on your credit reports is going to decrease your credit scores. So, become extremely vigilant in protecting your credit reports from this type of information appearing in the first place.
In most cases, people with bad credit want to pay off the collection account. However, if money is tight, it may take some time to get them paid. But, if you do step up and pay off the account, you expect the collection agency to step up also—don't you?
Well, unfortunately, that's not always the case.
Paying off a Collection Account Won´t Increase Your Credit Scores
Even after a collection account is paid in full, and your credit reports show that the collection was paid in full, your FICO credit scores will reap no rewards. They will not increase one point.
This is the reason...
Any instance of a collection account on your credit reports decreases your credit scores. When the collection account appears on your personal credit report, it is an element of your credit history. It is of no significance if the account is paid off or not.
Total Value of Collection Account is of No Importance
It doesn´t matter if the collection account is for $50 for an unpaid cable bill or $5,000 for a plasma television—the outcome is identical—your credit scores will drop by the same amount.
This is an essential topic you must understand. It stands to reason that since the amount is lower, it won't lower credit scores as much. Incorrect.
Every person knows that late payments on a home loan or automobile, which can be hundreds or even thousands of dollars, will hurt your credit. But what everyone does not know is that even if a small $50 balance goes to a collection agency, and it finds it way to your credit reports, it will hurt your credit just as much.
Bottom line: anything from a collection agency that appears on your credit reports is going to decrease your credit scores. So, become extremely vigilant in protecting your credit reports from this type of information appearing in the first place.