Paying off collections will severely damage your credit scores for three main reasons: 1. Paying off a collection updates the statute of limitations, allowing the collector to pursue the debt for longer. 2. The collection status remains as a "9" even after being paid off, still showing as a defaulted account. 3. Paying off a collection often updates the date reported on your credit reports, keeping the negative item visible for longer. The only way to truly improve your credit is by deleting negative collection items entirely from your credit reports.

1. 3 Reasons Paying off
Collections will Severely Damage
your Credit Scores
By Lenders Choice Credit Solutions

2. • Many consumers believe that paying off
collections is the best way to improve credit
• In reality, paying off collections will almost
always HURT your credit scores

3. • Today we will focus on
exactly what happens to
your credit when a
collection is paid off
• At the end of this webinar
you will know all the facts
and insider secrets that
collection companies don’t
want you to know

4. Reason 1: Paying off a collection
updates your SOL
• Every account you owe money on
has a Statue of Limitations SOL
• This SOL determines how long by law
a creditor can collect on that debt.

5. • The SOL varies based on the state you live in or
the state you acquired the debt
• Each state has different time frames that
collectors can attempt by law to collect on that
debt

6. • Your SOL will also vary based on
the account type
• Mortgages, judgments, and tax
liens are a few accounts which
have longer times where the debt
can be collected on
• Credit cards and other installment
loans usually have shorter times
that collectors can collect

7. • Many states have a Statue of
Limitations of 4 years on credit card
and contract debt.
• This means the collector can only
collect for 4 years beyond the Date
of Last Activity of that account
• Mortgages in many states have a
SOL of 7 years where the bank can
pursues you to collect on that debt

8. • When a payment is made on a collection
account the Date of Last Activity is updated to
the date the payment was made

9. • For example, let’s say you had a
CHASE credit card that went
into collections 3 years ago
• If the SOL was 4 years, that
would mean you can only be
pursued for 1 more year on
that account
• But when you make a payment,
you update the Date of Last
Activity on that account
extending the SOL

10. • If you make a partial or full payment to that
collection company today, you reset the SOL to
today when you made that payment
• They would have only been able to pursue you for 1
more year if you didn’t make a payment.

11. • But now that a payment was just made, you just
reset the SOL and now the collector has 4 MORE
years to collect starting from the day you made
the payment

12. • When you pay off a collection you extend the
Statue of Limitations on how long that collector to
collect.
• This is one great reason you do not want to pay off
a collection

13. Reason 2: Paying off a collection does not change
the account “status”

14. • If you have an account in good standing it reports
as a “1” status
• For example, a paid as agreed Mortgage reports as
a M1 status, and a paid as agreed Revolving
account reports as a R1 status

15. • When late payments occur, that “1” status changes
based on how late the account is being paid
• The first late payment changes the status to “2” and
as the account becomes further behind the
numbers increase until the account ends up in a
collection as a “9” status
• All collections report as a “9” status and severely
damage your credit scores.

16. • Your credit scores are a mathematical model
designed to depict your risk of going 90 days late
on an account in the future

17. • When you have collections and “9” status
accounts your risk is high and your scores are
lower as a result
• When you pay off a collection, the account still
remains a “9” status
• It is still looked at as a defaulted account, and you
still are just as high of a risk for defaulting in the
future

18. • The truth is, your scores will not
go up when a collection is paid
because the collection “9”
status still remains and it is still
looked at as a defaulted account
• Paying off a collection will NOT
raise your scores for this reason

19. Reason 3: Paying off a collection will
update your Date Reported
• Every account on your credit report has a
particular time it can be reported for

20. • The times these accounts can report
varies based on account types
• Most negative accounts remain on your
report for 7 years. Tax liens,
bankruptcies, and other government
accounts can remain on the credit for 10
years
• Other IRS type debts can remain on the
report indefinitely

21. • The time starts from the date you went late, NOT
your date of last payment like the Statue of
Limitations
• Many creditors will update this date when a
collection is paid off, even though they are not
supposed to by law

22. • But if you are in a re-payment plan for a debt, and
miss a payment, they can legally update this date
on your reports

23. • For example you have a Capital One credit card
which you started going late on 4 years ago
• The account is due to drop off in 7 years, so since it
is 4 years old already it will drop off in 3 more
years
• But in many cases when you make a payment on
this debt the collector updates this date to the
date you make the payment

24. • That means that account will now report on your
credit much LONGER than it should. It was due to
drop off in 3 years based on the prior example,
but now that clock is reset and will remain for
another 7 years.

25. • Paying off collections in many cases updates
your account so collectors can keep the
negative item on your credit report much
longer than it should be

26. • When you pay off a collection many items on
your report are updated. Ads you know now,
most of them are not good and will severely
hurt your credit score

27. • The only good thing that
happens is the balance is
reported as $0 if it is paid off
• Your scores benefit a little based
on now having a $0 balance
instead of an outstanding
balance.

28. • But having a $0 balance does not outweigh having
the Date of Last Activity updated, so your credit
scores mostly will go down as the bureaus see it as
a recent collection and still a “9” collection status
• This means your risk is still high, and your scores
stay low

29. • The only way to improve credit is to DELETE the
negative item
• When the item is deleted, all the history is wiped
out and the “9” status collection is gone for good

30. • If you do want to pay off a collection, make sure
you obtain a Pay to Delete letter to have the item
removed completely.
• Otherwise, dispute and delete your negative items

31. • But don’t pay off collections or you WILL hurt your
scores due to these 3 reasons on how that paid off
collection affects your credit scores

32. Get started today so you can have
the excellent credit you deserve!
Call us today!
214-307-4946