PAYING COLLECTIONSBARELY IMPROVES SCORES

PAYING A COLLECTION WON’T REMOVE IT FROM YOUR CREDIT REPORT

THERE’S ONLY 2 WAYS THAT COLLECTIONS IMPACT SCORES

• Paid collections will continue to hurt your credit scores for up to 7 years. 1

1) The BIGGEST impact (by far) is determined by how old the collection is.

2) The SMALLEST impact is based on whether the collection is paid or unpaid. 2

• Here’s an example of the impacts from an old collection that’s 3 years old:

• Here’s an example of the impacts from a new collection that’s 1 year old:

• As you can see, paying collections gains back about 1/3 of the points that are lost.

WHAT YOU CAN DO NOW

• If you decide to pay a collection, try to negotiate with the collection agency to delete the account from your credit report. 3

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• An unpaid collection that’s 3 years old drops scores by roughly 6 points.

• If you pay it off, it still continues to drop scores by roughly 4 points.

• An unpaid collection that’s 1 year old drops scores by roughly 50 points.

• If you pay it off, it still continues to drop scores by roughly 35 points.

Consider Settling a Collection for Less

Most collection agencies will “settle for less” if you ask them. This doesn’t mean they’ll remove it from the report. It means the collector will accept payment for a lesser amount than what you owe and the account would be considered paid, with no remaining balance. Settling for less has the same exact e�ect on your scores as paying it in full. Some people think “settling for less” hurts more. It doesnt. Protect yourself by having the collection agency send you the settlement o�er in writing before you pay.

Medical Collections Affect the Score the Same as Other Collections...and Both are Just as Bad as Charge-Offs.

Left unpaid for 60 - 90 days, a medical bill is usually sent to a collection agency and ends up on your credit report after 6 months. Some people think medical collections don’t hurt their scores compared to other types of collections or charge-o�s. However, collections, charge-o�s, and even judgments are all considered “bad debt accounts” and a�ect the scores the same.

Each Collection Costs You Points - Quantity MattersOne old collection won’t hurt scores that badly, but a bunch of collections all add up and drop scores more than people realize. For example, lets say you had 15 collections that were paid 5 years ago. Each collection would drop your scores by a minimum of 5-7 points each, and in total, would drop scores by 75-100 points.

1 Collections Report for 7 YearsPaying a collection or charge-o� will not remove it from your report. In fact, it will continue to report for 7 years from the “Date of First Delinquency,” which is the date the debt �rst went delinquent with the original creditor. The “Date of First Delinquency” also determines the age of the collection and how much it impacts your score. Often times, collection agencies sell the debt to a di�erent collection agency. This does NOT reset the “Date of First Delinquency.” Pay attention to how old the actual debt is...not how old the collection is.

2 A $0 Collection is Better Than a $1 Collection...But a $10,000 Collection is Just as Bad For Scores as a $1 Collection (i.e. The Amount Doesn’t Matter)

3 Negotiating With a Collection Agency to Pay For Deletion

Basically, unpaid collections a�ect your scores the same, whether the balance is $1 or $10,000. Loans, on the other hand, a�ect your scores di�erently, based on the amount. A bigger loan means a bigger risk...which means a bigger e�ect on scores. But loans and collections are not the same. Loans require monthly payments. Collections don’t. That’s why the balance of an unpaid collection has no bearing on the score.

Some collection agencies will agree to remove a collection from your credit report if you pay it in full. Not all collectors will negotiate (it depends on their company policy). Start by asking if they’ll accept a settlement amount in exchange for deleting the account. If they won’t bite, ask nicely if they’ll delete it upon full payment. Try to get the agreeent in writing...before you pay....they may or may not do this.

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