Are you trying to improve your credit score? If so, you may be wondering whether paying off collections and judgments will help your credit score. The answer will depend on a variety of factors – most notably the “date last active” on your collections and judgments. It is a common myth that your credit scores will increase by paying off all collections and judgments. In reality, much depends on when those collections and judgments were issued.

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.