I know it doesn’t make sense that you are punished for doing the right things, according to my friends and credit experts at Home Loan Assist (HLA), unfortunately that is the case when it comes to credit. My friends at HLA shared this with me today – A collection that is six years old and hasn’t reported for six years is only holding down your score 5 points. When you pay it off, it will push forward the reporting date to today and will still be coded with a 9 coding which means it is a collection. So doing the right thing can drop your score 30-45 points, rather than leaving it alone and only holding down the score 5 points. When the creditors/collection agencies tell you that they are going to update it to “satisfied”, “good standing”, or “paid in full”, none of this will help increase the score. They use these strong adjectives to make you feel like they are going to increase your scores, rather than hurt it. The best you can do is try to leverage your payment for a deletion letter. Ask for the deletion letter before you pay to make sure that they will provide it. Unfortunately only 30% of companies will provide the letters of deletions and calling them can cause your collection to update the reporting date.
There are a few collections that will boost your score when you pay them off, but that is only charged off credit cards held by the original account holder. The reason why these will help the score is because they are holding down the amounts owed section of the credit algorithms as well as the payment history section. The payment history section will drop the score slightly, but the gains on amounts owed will supersede the loss from payment history.
Rather than spin your wheels on what will help and what will hurt their credit, let my friends at Home Loans Assist take care of you!