Is it better to settle a collections account or pay it in full - what are the benefits?

Answer 1

Once an account goes into default and becomes a collection, it is considered a derogatory (negative). The damage to your credit remains, regardless of amount owed, whether it's paid, unpaid or settled. The impact to your credit score is calculated primarily based on the month/year the information is last reported to the credit bureaus. Much of lending today is credit score driven. Lenders are less concerned with the details of credit issues and more interested in the overall numbers. Reliance on details varies from lender to lender. A particular lender may be impressed with the fact that you took responsibility for your past debts and paid them in full. But if your score is not "within range" they will not be able to make an exception to grant you a loan. The best option for consumers is to offer to settle derogatory debts in exchange for removal of all negative data from their credit reports. This benefits the collection agency, by getting paid, and the consumer, by improving their credit. Complete removal of all negative information is the only way that paying or settling collections can improve your credit. A paid or settled collection account is still derogatory. It can remain on your credit report for 7 years from the last time you paid the account on time immediately prior to the default.