Collections - how to manage them and what they do to your credit.

Dear myFICO,

I have a few collections on my credit report that are 2-3 years old. I'm not sure if it's better to pay them off or just let them fall off the report. Any advice?

Hartford, Connecticut

Dear Phil,

Collections can affect more than just your FICO score. You might have debt collectors harassing you and making you feel like this is a financial burden that will never go away. But even debt collectors have to play by rules, and if you feel like you're being bullied or harassed, find out your rights at the Federal Trade Commission's web site.

The fact that you have collections listed on your credit report will almost certainly lower your FICO score. Your score weighs collections on your credit report according to when the collection occurred. Generally, the more recent the collection, the more it's going to hurt your FICO score. At myFICO we always recommend paying off your legitimate debts, and paying off old collections won't hurt your FICO score.

Often, it's nice to hear how other people are dealing with similar situations - there have been quite a few discussions about collections on the FICO Forums.

Is it better to pay off your collections? As far as your FICO score is concerned, two things are considered; has a collections appeared on your credit report, and when it was reported. So whether or not you pay your collections off is really a personal decision. But let me ask you this: if you won the lottery tomorrow, would you pay off your collections? Your answer probably reflects your personal feelings on debt and financial obligations. Something else to keep in mind is that every lender uses its own criteria when evaluating loan decisions. Some lenders may want to see that you are paying off collections before approving your loan. So, paying off collections could very well improve your credit-worthiness in the eyes of a lender.

Since your collections are 2 and 3 years old, your FICO score will consider them for several more years - typically, collections remain on your credit report for 7 years. The best things you can do in the mean time are to continually pay all your bills on time and be responsible for your credit. Take a look at this free booklet to help you understand how collections are calculated into your FICO score and what else your score considers. I hope this answers your question and good luck getting and staying FICO healthy!

myFICO Team

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