If you got sent to collections, your credit score probably took a pretty big hit. So theoretically, if you paid off collections, your credit score should bounce back, right?
Unfortunately, only your FICO 9 Score will bounce back by paying off collections. Your FICO Score 8 and earlier versions won’t improve until the collection account falls off your credit report (which happens after 7 years).
However, if you’re offered a Pay to Delete Agreement, then paying off collections will improve your FICO 8 credit score. But even without this agreement in place, you should still prioritize paying off collections since creditors look at your credit report in addition to your credit score.
What’s the Difference Between FICO 8 and FICO 9?
90% of top lenders use FICO Scores when evaluating creditworthiness and among the various versions of FICO scores, FICO 8 and 9 are currently the most commonly used.
As is often the case, people tend to be wary of change so it takes a while before lenders move on to the newest version of FICO. In fact, FICO 8 is still the most commonly used version even though it was released in 2009.
FICO 9 was released in 2014 and has been adopted by a significant number of lenders since then. To put this into perspective, FICO 10 was released in 2020 and is still only being used by a few lenders at the time of writing.
💡 Bottom Line: The most important thing to note about these two FICO scores is how widely used they are and their longevity. This means that even though FICO 8 is the most important score today, it’s only a matter of time before FICO 9 and 10 become the most widely used.
What is Pay to Delete?
A collection account stays on your credit score for up to 7 years even if it’s paid off. FICO 9 only penalizes unpaid collection accounts while FICO 8 penalizes both paid and unpaid accounts.
Fortunately, some collection agencies will offer you a “Pay to Delete” agreement. This boils down to you paying them a certain amount of money upfront in exchange for them deleting the collection account from your credit report.
This allows you to mitigate almost all of the damage of being sent to collections. It’s also possible for you to initiate this agreement but you can only force the issue if there is incomplete or inaccurate information on their report.
💡 Note: Be sure to get everything in writing before paying anything. If possible, send your payment in via money order to ensure everything goes smoothly.
Does Paying Off Collections Improve My FICO 10 Score?
We’ve talked about how to improve your FICO 8 and 9 scores by paying off collections. But how will we fare in the future when FICO 10 is more widely adopted?
When FICO 10 was released in 2020, Dave Shellenberger, FICO VP of product management had this to say about the issue:
“Consumers with recent delinquency or high utilization are likely going to see a downward shift, and depending on the severity and recency of the delinquency it could be significant.”
Late payments are considered to be delinquencies and the worst case scenario for this issue is being sent to collections.
Experian also believes that the impact of late payments will be more pronounced under FICO 10 than under previous scoring models.
💡 Bottom Line: Even ‘Pay to Delete’ may not be able to help you improve your FICO 10 score since it can’t delete your records of late or missed payments.
