Open collection account

[Anonymous]

I have an open collection account that started showing up in my credit reports since last year.  Prior to that, my credit score has always been excellent, no lower than 800.  The collection account was from a Florida timeshare that I  stopped paying till it was in default and eventually was foreclosed. The account was then passed on to a collection agency.

Since the timeshare was already foreclosed, is it a wise idea to pay the collection agency?  I do not expect to take up any loans at all anymore that would need a credit check.  In the meantime, the amount of the open account keeps going up.

[Anonymous]

Paying a collection offers no score benefit unless they delete the tradeline. If you can do a pay for delete, go for it. Otherwise you need to check the statue of limitations to make sure they cannot enter a deficiency judgment against you.

Make sure you do not re-acknowledge the debt, agree to a payment plan, or make a partial payment or it will restart the statute of limitations, you need to make a deal to get it off your credit report without acknowledging the debt is yours.

[RobertEG]

While paying a collection does not result in an immediate score increase, in the broader sense, paying will provide future score improvement compared to a collection that remains unpaid.

Thus, paying has clear scoring impact.

More specifically, as a collection (or, for that matter, a delinquent OC account) remains unpaid, the period since initial delinquency continues to increase.  Once the debt collector makes any updated reporting, that increased period of delinquency becomes of record and known to FICO, and thus continues to have increasing negative scoring impact.

If a collection is paid, that requires prompt reporting of closure of the collection, with update of status to paid or settled, $0 balance.  That terminates any continued update of delinquency by reporting of an increased period since initial delinquency, permitting the collection to begin to age in time since terminated delinquency.

Additionally, regardless of any credit scoring impact, when you apply for new credit and the prospective creditor sees or becomes aware of an unpaid, delinquent debt, that can itself be a reason for denial of new credit, regardless of your three-digit FICO score.

[Anonymous]

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@RobertEG wrote:

While paying a collection does not result in an immediate score increase, in the broader sense, paying will provide future score improvement compared to a collection that remains unpaid.

Thus, paying has clear scoring impact.

More specifically, as a collection (or, for that matter, a delinquent OC account) remains unpaid, the period since initial delinquency continues to increase.  Once the debt collector makes any updated reporting, that increased period of delinquency becomes of record and known to FICO, and thus continues to have increasing negative scoring impact.

If a collection is paid, that requires prompt reporting of closure of the collection, with update of status to paid or settled, $0 balance.  That terminates any continued update of delinquency by reporting of an increased period since initial delinquency, permitting the collection to begin to age in time since terminated delinquency.

Additionally, regardless of any credit scoring impact, when you apply for new credit and the prospective creditor sees or becomes aware of an unpaid, delinquent debt, that can itself be a reason for denial of new credit, regardless of your three-digit FICO score.

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@RobertEG Let me see if I'm understanding you correctly. What you're saying is, if it happens to be a collection that is updating, then it will eventually help because it's no longer regularly updating and can therefore age so it's no longer considered recent?

But if it's not updating regularly then there's no benefit whatsoever scorewise  correct?

so if it's updating regularly and not going to fall off anytime soon, it would behoove someone to settle it somehow?

[RobertEG]

Exactly

[Anonymous]

Thank you for all the info. I might decide to pay it off. 

[Anonymous]

If you do, try to get a pay for delete and try to negotiate it at a lower amount if possible. Because you’ll see a significant score improvement if you have your only collection deleted, but you have to have every one of them deleted, if you have more than one to see significant score improvement.

But if it’s regularly updating and not falling off anytime soon, yeah you might wanna deal with it one way or another. Good luck!

[Remedios]

While Robert clarified paying from scoring impact point of view, there is that beautiful notion of paying back what you took and what you owe.

I cringe at "Why pay.." 

For the same reason you cannot walk out of the store with thousands of dollars in goods without paying. That's why. 

Perpetuating this notion that there is no benefit in paying unless it gets deleted misses one really important part, most people who adopt that attitude have multiple unpaid collections because personal responsibility is never in play 

It's always someone else's fault, error etc

So before telling people there is no benefit in paying, consider if you'd advise someone that paying in the store makes no sense if you're not planning on getting caught stealing