Collection accounts are unpaid debts that are typically sold from the original creditor to a 3rd party collection company at a fraction of the original debt. It is the collection company that then not only tries to collect on the debt but also reports the collection to your credit report.
Most collection companies report the debt every month to the credit bureaus. This process is called “re-aging” of the collection account. What this means to your credit score, is that it is impacted as if it were a new collection account every month. There are some cases where the collection company doesn’t re-age monthly and the collection account can become “dormant” not impacting your credit scores as much.
It is the dormant collections that can significantly lower your credit scores once paid. This is due to the fact that the collection company will update the account to the credit bureaus to show it’s paid, and the new activity will lower your scores.
So when you review your credit report and note the collection accounts, it’s best to settle the collections that are recently “re-aged” on your credit. By paying the collection it will not lower your scores, and only help in the long run as it stops the re-aging process. As time passes the paid collection impacts your scores less.
For more information on how to remove your collection accounts from your credit report, please contact me direct for a free credit report review and consultation.
President and Certified Credit Expert