Does paying for collection increase your credit score?

Overview:

People often come to credit score rectification companies completely frustrated and exasperated. The usual complaint they have is that they have paid off their collection account, but their score still did not improve.

Lenders usually bombard the borrowers with numerous phone calls and strong language to recover their amount. In order to attain peace, the borrower clears the amount so that his score also improves. Since the amount is cleared, one wishes to check his score to know the improvement in the same.

As a layman, people feel that if they clear a collection amount, their score will improve. Right? Ill-advisedly, this is not true. Here’s why:

CIBIL is the most referred scoring model which is widely used in India. The scores provided by CIBIL are extensively considered by car dealers, banks, and other lending agencies. If you notice a date adjusted to the “closed section” of your CIBIL report, it means that the account is closed by the lender. In simpler terms, you have cleared the amount borrowed.

However, it is to be noted that if you haven’t paid off in full, then also the account is marked closed, but it appears with a status “Written Off or Settled.”This certainly is considered negative by the lenders. So, if you have a habit of paying part dues and then you are under the impression that you are portraying a positive picture, then “knock knock” you are building an entirely negative image of yourself.

Too many open accounts signify that the borrower already has a number of EMI’s to be paid monthly and hence alarms lenders against offering money. Even if someone agrees, the rate of interest will be too high.

So, the question here is: “How do you get a collection deleted?

There are different ways to address this, but let us consider the most popular one. For a collection to report on your credit file, it needs to be verifiable and accurate. The best way to authenticate this is to place a request for validation. If it does not meet the two basic needs of being accurate and verifiable, the collection agency will have to remove the same.

This is very common and sometimes it gets cleared in 30days. Once the collection is marked as deleted in your report, the score automatically gets improved.

Please note the following:

  • The more recent the account, the better the impact on your credit score
  • The closing collection is not related to the amount, but to the time period within which the account is cleared.

Now that you know how collection accounts can improve your score, work on the same and stay credit healthy!

Updated: November 28, 2016 — 6:43 pm

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