This next set of emails will discuss aspects of collection accounts, including the question, should I pay them off?

What is a collection account? It’s probably obvious, but a collection account is one that the original company you owed the money to gives up trying to get you to pay them and so they write off what you owe as “bad debt” and sometimes sell your account to a debt collection agency.

How long do these stay on my report? Collections accounts will stay on your report for seven years.

Should I pay off the collection account? I know, you hate this one, but…it depends. First, do you legitimately owe the money? If yes, then yes, you should. But not so fast, because how and to whom you pay the debt makes a difference.

This one is complicated and it’s going to take some more emails to get it all out, but we’ll start with one way you can pay off a collection account and possibly have it removed from your report. Did we mention that if you just pay off a collection account it may not help your score? 

That’s right, once paid, it will show as a paid in full, or settled collection. This can help you get a loan from some lenders, but it won’t change your score for many of them. In the latest version of FICO scoring, FICO 9 you are not penalized for paid collection accounts, but in the one before that, FICO 8, you are. Unfortunately, many lenders still use FICO 8.

You'll get more details in our next email. See you soon!

Sincerely,