Does Paying Off a Year Old Collection Hurt My Credit?

A consumer's credit rating is damaged by late bill payments, excessive amounts of debt and past-due accounts that have been sent to collection companies. Therefore, people should take steps to avoid such predicaments to protect their credit. Consumers who pay off a year-old collection account usually won't make much of an impact on their credit scores.

Credit Rating

People who pay off a collection debt that is a year old won't hurt their credit rating, but they also shouldn't expect an immediate improvement in their rating. Debts that have been turned over to collection companies remain in consumers' credit files for seven years. That type of negative information in credit reports causes people's credit scores to drop. Consumers who have collection accounts in their credit files can improve their credit rating by consistently paying their other bills on time to avoid further declines in their scores.

Credit Checks

You may gain some benefits from paying off a year-old collection debt even though your credit rating won't immediately improve for doing so. A Bankrate.com article titled "Can Paying Old Bills Hurt Your Credit?" says lenders, landlords and others who do credit checks would prefer to see a paid-off collection account rather than an unpaid one. A paid-off account shows that you took care of your debt obligation even though you paid late. Ensure that a debt collection company will report to credit bureaus that you paid your debt in full before you send your final payment to the company.

Collectors

Debts aren't erased unless they're paid in full, forgiven by a creditor or lender, or discharged through a bankruptcy. Therefore, people who don't pay off old debts may be held responsible for paying them even if the debt is a year old or older. Collectors are allowed to contact consumers in an effort to recoup old debts, unless consumers send them a written notice to tell them to stop contacting them. Furthermore, some companies sell their uncollected debts to other collection companies, so a debt you haven't paid in full may be passed from one collector to another.

Considerations

According to the Experian credit reporting company, consumers who have paid off collection accounts may be able to bolster their credit rating with secured credit cards. Secured card issuers require people to deposit money into a savings account as collateral for a credit card. The credit limit that cardholders receive is usually close to or equal to the amount of their deposit. Cardholders who manage secured accounts well by paying the bill on time and not exceeding their credit limit may be able to raise their credit scores.