Should You Pay Off Your Collection Accounts?

When it comes to your credit ratings, whether you pay the right account or the wrong account can make a huge difference. Let's concentrate on what not to pay today.

One would think that paying off negative debts on your credit report that are in collection, will automatically improve your credit score. However, this isn't necessarily the best option.

Paying off collection accounts will almost certainly lower your credit score. This is despite the popular belief that having a $0 balance on your collection accounts must be better than owing money to a creditor or collection agency.

Collection balances are meaningless; for example, you may have a one million dollar medical collection or a one-dollar medical collection, and the scores would be the same if everything else was the same. After you make a payment, you reactivate the account, which causes it to report as new again. This is why your scores normally drop when you make a payment.

On a credit report, this is referred to as the DLA. This DLA, or Date of Last Activity, shows the account's weight, as well as the seven-year statute of limitations before the item falls off naturally (which is a whole other problem, but we will save that for another day).

The logic behind this folly is that the algorithms used to calculate scores are unable to discern between rich and poor people. As a result, the fact that a richer individual can pay off a specific dollar amount more quickly than a poorer one would be discriminatory in algorithm calculations.

So, what are you going to do with these nagging negative accounts? The good news is that you have a fantastic credit repair company at your disposal who would be delighted to help. Feel free to contact us with any concerns or questions.

Denise Davis

Credit Repair Specialist

Serving All of North Carolina

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