- According to the Fair Credit Reporting Act (FCRA), collection accounts that appear on your credit file must be removed after seven years. The reporting period applies to both paid and unpaid accounts. Thus, paying off or settling with a collection agency does not result in the credit bureaus deleting the collection from your credit record. Nor does paying off a collection agency improve your credit score.
- While paying collections does not make them go away, taking responsibility for old collection debts by paying them off does not hurt your credit either. A common misconception many consumers have is that when they pay a collection account, the reporting period for the debt resets -- resulting in the account appearing on their credit file for an additional seven years. This is not the case. Regardless of whether you choose to pay or ignore the collection account on your credit report, the credit bureaus must remove it when the federal reporting period for the debt expires.
- The reason paying a collection account does not remove it from your credit report is that the debt itself is accurate. Paying off the debt at a later date does not change the fact that you failed to pay the original creditor -- causing the debt to end up in collections. Your credit report serves as a record of your past financial activity that helps businesses determine how risky it is to do business with you. If collection agencies automatically removed derogatory information when consumers paid off their debts, the debtors' credit reports would not accurately reflect the potential risk they present to other companies.
- Occasionally a collection account will appear on a consumer's credit file by mistake. Should you encounter a derogatory debt within your credit record that you believe belongs to another individual or that you simply do not recognize, the FCRA allows you to dispute the information on your credit report. Federal law requires each credit bureau to investigate disputes you file. If the report was entered on your credit record in error, the credit bureaus must remove it. Because paying collections does not remove them from credit reports, paying a debt that does not belong to you does not benefit your credit record in any way -- especially when you can have erroneous reports removed early by disputing them.