We are often asked this question. Or rather, it goes more like this:
"I paid off my a collection and my credit score went down!???"
"I paid off a collection and it is still reporting on my credit report!??"
"I paid off a collection account but it is still reporting a balance on my credit!!"
Unfortunately, all of these scenarios are very real, and we hear them every day. So, let's hit them one by one, so that you have a better understanding of why these happen.
1) "I paid off my a collection and my score went down!???"
Well, imagine if you would, your credit report, specifically, a unpaid collection tradeline. Typically, the tradeline does not 'renew' every month. For several reasons, but the largest is that every time the collections agencies, or any creditor for that matter, sends data to the bureaus, they have to pay. So, typically, they do this sparingly. However, when you do pay a collection and the agency does update the balance information it renews all of the other information as well, such as the language 'collection', which results in an over all decrease in scores SHORT TERM. So it is rather common to see scores drop after a collection payment is made.
2) "I paid off a collection and it is still reporting on my credit report!??"
This is the most common question we get from folks that call in. Basically, when you pay a collection account, you are renewing the 'date of last activity'. What that means is that you are allowing the bureaus/creditors to prove the collection is valid by making that payment. Subsequently, they can continue to report this negative information for an additional 7 years from that payment date. Does it always? No. Does it usually? Yes. Unless there are conditions upon payment that the collection agency agrees to. However, even if they do agree to remove the account, they don't always. Remember folks, they want money and will say many things to get it. We do have some best practices in regards to that, so call for more information.
3) "I paid off a collection account but it is still reporting a balance on my credit!!"
Now, this is the most frustrating. First and foremost....ALWAYS GET A PROOF OF PAYMENT!!!! When we have a proof that an account was paid, whether it is a collection account, charged off account or really anything, we have leverage that we can fashion to the bureaus to compel them to report it accurately. It is not uncommon for collection agencies to not update the balance information. Again, because it costs them money to do so. We do not suggest that they are being deceitful, and we here at Credit Dr. want to believe that most people are good, honest folks. But, play it safe and get proof of payment.We have seen accounts, and have proof on our walls, of circumstances where paid collections are actually SOLD TO OTHER COLLECTION AGENCIES and you are then pursued by these folks.
We hope this helps navigating the dark world of collection accounts and how best to deal with them. If you have any questions, please call us here at Credit Dr. and we will do our best to answer them.
Ed-Jack Dvorak is National Affiliate Liaison at Credit Dr., a national credit restoration company. He works with clients and creditors to improve credit profiles.