Many people are under the assumption that once they pay a collection, it will automatically be removed from their credit report and it will no longer hurt their credit. This assumption is not accurate. Let’s discuss it in detail.
A paid and unpaid collection
Usually, when you pay a collection, all that happens is that the collection gets updated from an unpaid collection to a paid collection. But both an unpaid collection and a paid collection significantly hurt your score. So the update to paid instead of non-paid will not help your score much.
Late is late
The reason why a paid collection does not help your score much is because scoring models are built in order to predict how much of a chance a consumer is likely to be 90 days late or more on a payment. The higher your score is, the less chance.
If a bill ends up in collection before it is paid then the chance of you being 90 days late or more on a future bill is high. The chance does not change much if you end up paying the bill. The actual fact that it needed to go to collection before it was paid tells a dark story about our payment habits.
So even if the bank or whoever, ends up recovering their money owed to them once the collection is paid, scoring models don’t care. All they care is that you paid your bill 90 or more days late.
Medical collections are different
It’s extremely important to note that medical collections are different. With the new agreement of the credit bureaus that went into effect July 1, 2022, paid medical collections are removed from consumer credit reports. So if you pay a medical collection then it will be removed from your credit report.
Pay To Delete agreement
Sometimes, it is possible to negotiate with a debt collector what is called a “Pay To Delete” agreement. With a Pay To Delete agreement, the debt collector agrees to remove a collection from your credit report in exchange for payment. Just make sure you get such an agreement in writing via email or so, and that it clearly says it will be removed from your credit report, not just updated. As we pointed out before, if they just update it as paid then it will not help you much. The collection needs to be completely removed from your credit report as if it was never there.
Sometimes it goes for automatically it depends on the collection agency