As you have learned before in the past from our credit tips, paying off most collections will have a negative impact on the credit score.
Why is it that paying off a charged off credit card that is held by the original creditor, the only collection that will boost your credit score? The reason is because a charged off credit card is impacting two sections of the client’s credit score where all other collections are impacting only the payment history section of the credit score. When you pay off a collection, it will push forward the date of last activity and the reporting dates which will have a negative impact on the credit score.
However, when you pay off a charged off credit card held by the original creditor it will also clear up the amounts owed section of the credit score. So, when you pay off a credit card, it will push forward the reporting date and date of last activity which will drop the score about 10-20 points but will also see a gain of 40 points by clearing out revolving balances, which will net the client 20-30 points.
If the charged off credit card is transferred from the original creditor to a third-party collection company, it will not benefit the client because it is now an O-9 instead of an R-9 so it is not impacting the amounts owed section of the credit score anymore. If the charged off credit card is 4 years or older, we do advise you to call us first to look at the report and make sure it is an account that will benefit the client. If it is 4 years or younger, you can go ahead and have the client pay it off because it will be beneficial for the score.
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