If you pay off an old collection account, the “date last active” will change. Among other factors used to determine your credit score is the “date last active” on all accounts. For example, you may have a collection from a long-ago past due medical bill, with a last active date of 03/01, with a $600 balance. Since this is an old, inactive collection, its effect on your credit score is very minimal. It is probably only lowering your score slightly. Your recently active credit plays a larger role in your total credit score than very old accounts, even if they are collection items or past-due. If you decide to pay off the old collection account, you will bring the “date last active” to the current month. Your new balance will reflect $0 as the amount owed – however, since it is a recently active collection item it may negatively affect your score. Unfortunately, a recently active collection account (with a zero balance) is more harmful to your credit score than an old collection item with a past-due balance.

The company that manages credit reporting and scoring is called Fair Isaac. They claim that adjustments have been made to credit scoring (beginning in 2008) that allow you to pay an old debt without any negative movement in your credit score. Fair Isaac claims this is true for lump sum payments – and not a series of payments over time.

Fair Isaac’s claim that paying off old collection accounts will not negatively affect your credit score is very controversial, and it may not be true for all credit accounts. Consult with your financial advisor, credit counselor or bankruptcy attorney if you plan to pay-off very old collection items and judgments. Instead of paying these items, it may be better to wait for old collections & judgments fall off your credit report.

Your credit score is affected by a number of factors. Some of the biggest factors include: total amount owed, age of credit lines, amount of total credit lines, percentage of debt in relation to open credit lines, payment history, recent credit applications, and on-time payment history. Age of credit counts accounts for roughly 15% of your total credit score. This means that the longer you’ve had credit with a particular creditor, the higher your score will be. When it comes to your credit score, newer credit lines are not nearly as valuable as older, aged credit lines.

Applications for new credit cards can hurt your score. If you have too many new credit card applications, it signifies that you’re looking to add more debt to your current total debt. Too many inquiries into your credit report can lower your credit score.

So, how does transferring a balance affect your score? Transferring a credit card balance to an account that’s already open won’t lower your credit score. However, if you open a new credit card and transfer a balance, then that can lower your credit score. This is because lenders are wary of new credit card accounts. Desperate borrowers often attempt to open new credit card accounts after they have maxed out their current lines of credit.

Another factor that can lower your credit score is maxing out all your available credit lines. Generally speaking, if your credit card balance exceeds 50% of your total credit line, then this can lower your credit score. Lenders like to see that you are not using the full amount of your credit lines.