As soon as a collection shows up on your credit report, the damage is done. That is, UNLESS you can get it removed. Outside of that, nothing can soften the blow from that credit report trauma. However, there are things you can do to make it worse…
The most important thing to understand about collections is how the credit scoring computers factor them into your credit scores. There are only two variables involved.
#1 – The status code. Collections are a status code 9, which is the worst one possible for your credit score.
#2 – The most recent activity date on the account. The more recent it is, the more negatively it impacts your scores.
Notice there is nothing about the ‘amount owed’ involved in determining the affect on the credit score. Is doesn’t matter how much you owe on the collection! So, whether you have a collection for $5 or $5,000,000, they will both do the same amount of damage to your credit score. Also as a result of that, paying off your collections can not cause your credit score to go higher. By paying the balance down to $0, you haven’t done anything to positively affect the two things considered on a collection account. However, you have done something that could negatively impact your credit scores. By paying off a collection, you have created a new “activity date” on the account which will cause your scores to go LOWER!
I’m not saying you shouldn’t pay off your debts if you can. I’m just telling you the TRUTH. It will not help your credit scores. In fact, it will hurt them.
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