Don't Be fooled on Collections on your credit report

Collection companies have done a great job over the years of convincing consumers that paying off collections will raise the credit scores.

You might be surprised to learn that paying off collections will actually LOWER your credit scores.

Collections are reported on your credit as an I9, or collection account. This means the account has already been "written off" and assigned to collections by the creditor.

Once an account is reported this way on the credit report, the damage to the credit scores is irreversible UNLESS that item is removed completely from the report.

If the account is paid off, the collection company only reports that the account now has a $0 balance, but they do NOT delete the item off the report.

The account has already become a collection, and your risk of defaulting on another account is already very high due to that collection.

So your credit score will NOT go any higher if it is paid off because paying off a collection after the fact doesn't lower your risk at all of defaulting in the future.

But what does happen is that the DATE OF LAST ACTIVITY is updated to the date you paid off the account. So if that account was sent to collections 3 years ago, the date of last activity is 3 years old and the impact to your credit score is not as much.

But if you pay off that collection today, you just update the date of last activity to today's date. The credit bureaus then read this as a recent account, and your scores go DOWN as a result.

Crazy isn't it? You just try to do the right thing and pay it off and they lower your scores as a result.

If you are going to pay off a collection, make sure you get a Pay To Delete letter. This means they agree to DELETE the item in return for your payment.

Or, hire a professional credit company to have the items deleted without having them paid off.

Most collection companies do break the law, and therefore many of those accounts are fairly easy to get deleted IF you work with a good company.

Have your collections deleted, and DON'T pay them off. Then you will have a healthy credit profile and healthy financial future.