Collection Accounts – Should You Pay Them Off?

So, you have collections on your credit report.  Should you pay them off?  Here is what Alan Hayon, President of Credit Advisory Group has to say to mortgage companies, like Valley National Mortgage Company LL about clients with collection accounts:


Collection companies have done a great job over the years of convincing consumers that paying off collections will raise their credit scores. Many are actually surprised to learn that paying off collections will actually lower their credit scores.

Collections are usually reported on the credit as a “9” status or collection account. This means the account has already been “written off” and assigned to collections by the creditor. Once an account is reported this way on the credit report, the damage to the credit score is irreversible, unless that item is removed completely from the report.

If the account is paid off, the collection company reports that the account now has a $0 balance, but they do not usually delete the item off the report. The account has already become a collection, and the risk of the consumer defaulting on another account is already very high, due to that collection.

So their credit score will not go any higher if it is paid off, because paying off a collection after the fact, doesn’t lower the risk of defaulting in the future.

However, the DATE OF LAST ACTIVITY is updated to the date the account was paid off. So if that account was sent to collections 3 years ago, the date of last activity is 3 years old and the impact to the credit score is not as much. But if the consumer pays off that collection today, they just update the date of last activity to today’s date, sometimes causing the scores to go DOWN as a result.

Crazy isn’t it? Your clients are trying to do the right thing and pay off collections, but their scores can be lower as a result.

Help your clients work with collection companies to have their negative item removed completely from their report, if they pay it off. This will help their credit while satisfying the collection company.

Questions? Concerns? Just want to say hello? Contact at 1-800-965-6405!

Alan Hayon, FICO® Pro
Credit Advisory Group
TF: 800-475-6078
MP: 516-965-2883
PH: 516-570-9555
FX: 212-731-0284


Valley National Mortgage Company LLC is licensed in Texas as a mortgage company by the Texas Department of Savings and Mortgage Lending and the Nationwide Mortgage Licensing System. The NMLS ID is 1084075. Marcus Nelson is the designated mortgage broker. NMLS ID 1088213. To contact Valley National Mortgage Company LLC visit our website at or send an email to

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