According to FICO, paying a debt collection in full will never affect your credit rating. When you settle an old debt collection or start a payment plan, it appears again for credit agencies and you can actually lower your score. Since your payment history makes up 35% of your FICO credit score, payments on your debts may be just what you need to boost your score. The statute of limitations for a debt is the time during which creditors or collection agencies can legally sue you for payments for a debt.
Should I pay off collections that are 5 years old?
The mistake this woman made was to believe that this debt would definitely fall off her credit report after seven years. However, if you owe the money and it is collectable, you should pay it or create a payment plan before applying for a loan. And the longer you make payments on a loan or save money for a down payment, the better qualified you are as a borrower. Even better, credit agencies must remove the collection from your credit report within 45 days.
Is it worth paying off old collection accounts?
The collection agency can agree to a pay-for-det agreement, collect the full amount owed and then not remove the entry from your credit report. You may not want to pay a collector if you never have income or assets, if you don’t owe the debt, if you want to settle for less, if the statute of limitations has expired, or if the collector doesn’t own the debt. Repaying the debt collection account, regardless of age or legal status, avoids future complications of borrowing.
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Barry Ritholtz is a renowned finance expert, author and blogger. With over 30 years of experience in the financial industry he has gained a reputation as a thought leader and influencer in the investment community.