Why Paying Collections Doesn't Raise Credit Scores

The FICO credit scoring models currently in use by lenders do not reward consumers for paying off collection accounts. Current versions of FICO are much more concerned with the fact that a collection occurred in the first place than they are with the balance of the account. In fact, a collection account will have virtually the same negative impact upon a consumer's credit scores whether the balance is $4,000 or $0. Paying a collection will also update the date of last activity, making it a newer negative account.

The purpose of a FICO credit score, is to predict the likelihood that a consumer will become delinquent on any of his/her credit obligations within the next 2 years. Current FICO credit scoring models are built with the assumption that a consumer who had collection accounts in the past is still likely to be delinquent on an account in the future. Therefore, the presence of a collection account regardless of the balance is going to have a negative credit score impact.

It is important not to become overwhelmed when you make the decision to begin trying to fix past credit issues. The best place to start is to get a copy of all 3 of your credit reports. You can access a free credit report from each of the 3 major credit bureaus every year at www.annualcreditreport.com. If you would like a copy of all 3 of your credit reports as well as your credit scores Please click here for a link to pull your credit.

Once you have your reports, review them thoroughly for mistakes. Credit mistakes happen more commonly than many consumers realize. In fact, the FTC estimates that over 40 million (or 79% of) consumers may have errors on their credit reports.

If you have any questions about credit or credit reports message or email me at michael@risingpointsolutions.com . Better yet, you can contact me directly at 727-835-8416.