Will it improve your credit score if you pay off a 2-year old collection that is the only activity on the report?

Since it is an older collection, your paying it off will initially hurt your score. However, this will improve over the course of many months. Unfortunatly, since this is your only active account, you will eventually lose all of your scores if you do not open another account the reports to your credit bureaus, and having no credit can be just as bad (and difficult to correct) as having bad credit. My advice to you is, if you can take the initial hit to your credit scores, pay off the collection, and after a couple months open either a couple small credit accounts, such as a credit card, overdraft protection (check to see if your bank reports to the bureaus - many do), or even a gym membership (Bally's I know reports if you do a payment plan).

Hope this helps!

Answer

I appreciate the above. But the lender can and frequently does require you to pay off the old debt anyway. Moreover, that craziness in official scoring is true for maybe 6 months. Most importantly it is happening in what might be the more junior and mechanical part of the process of actually approving a loan... many more things will actually go into it than the credit score.

So, lets see, if I was a lender, now and 6 months (or even 5+ years)in the future, as how trustworthy do you think I would comparatively rate these two, or desire them as customers:

1) He has not made payments on his previous promises. He still owes others money that he doesn't seem able, or maybe it's interested in, paying. They probably have the right to seize what he owns, or makes as salary in the future. Salary/money, which if he is actually intending to pay me (unlike anyone else it seems), is what he might have expected to pay me with! And those others want to get repaid, and will have a right to an amount that will continue growing by fees and interest charges, so his expenses are actually higher already than he's telling me. I can require he pay off those old debts I guess, but especially if he basically uses my money to pay those off, do I really want to be in the shoes of those he isn't paying now?

2) He seems to have had a tough period and missed payment obligations for some reason, (but that was XX ago / there is an explanation in credit file). Gotta' say s/he really wanted to stay responsible/honorable and worked through it, made good on his promise overall and paid them. He doesn't seem to owe others now, at least not more than he seems able to pay on what he's making....

I don't know about you...but not only would I'd sure have to rate #2 MUCH HIGHER, I'd avoid #1 like the plague!