To Pay Off or Not To Pay Off

Guest blog written by Sam Parker, Vice President of Heartland Credit Restoration (formerly CreditAbility). For more information or further questions email Sam at or visit

Many people are under the impression that paying off a collection, charge off, or profit and loss will increase their credit scores. Unfortunately, not only will your scores NOT increase but they will actually GO DOWN! It seems a little backward right? You pay a debt and you get dinged for it.

Here’s why! Once a debt goes to collection, the balance is no longer a factor. This means that technically a $5 collection will hurt you just as much as a $5000 collection. The only real factors that matter to your credit scores once a debt has been placed for collection are the DATE OF LAST ACTIVITY and the M.O.P RATING attached to the item. (I’ll explain MOP ratings in the next discussion) .

For the sake of this discussion lets pretend that you have a collection which was last active in October of 2005, this item would have a “9” rating attached, which is negative.

As time passes between present day and the date of last activity this negative item hurts your credit less and less. When you pay this negative item it updates the date of last activity to the current month and year HOWEVER the 9 rating attached to this item remains the same. What does this mean for you and your credit score? It goes down because to the scoring algorithms it appears that a new 9 rated (negative) account just hit your credit.

Some might say it’s best to NOT pay collection then. Unfortunately if left unpaid for too long, most collections will go to a Judgment status, meaning that this debt is confirmed by a court and must be paid.

So what can you do to avoid a mess like this? Get it in writing! If you’re going to pay a collection first get something in writing from the creditor stating that once your debt has been paid, they will either remove this negative item from the credit or update the item to an “unrated status”.

I hope this helps! Feel free to ask questions!

As you’re looking through the credit report what you want to pay attention to is the “rating column.” As most of you know there is a rating system which goes 0-9. It will usually looking something like R9, I9, I1, I9, etc…. The letters before the number are referring to the type of account….R meaning Revolving, I meaning Installment, etc. The number following the letter refers to its status. Below I have listed what each number means.

R0 – Too new to rate. Approved but not used.
R1 – Pays within 30 days of billing or as agreed.
R3 – Pays in more than 30 days, but less than 60 or when next payment is due.
R4 – Pays in more than 60 days, but less than 90 or when two payments are due.
R5 – Account is at least 120 days past due but is not yet rated R9.
R6 – No rating exists.
R7 – Paid through a consolidation order, consumer proposal or credit counseling debt management program.
R8 – Repossession
R9 – Bad debt, or placed for collection or bankruptcy

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