Dear Penny: I’m Working to Pay Off My Debt. How Can I Raise My Credit Score?
I currently have around $25,000 in debt. Most of it is medical bills, some of it is from random stuff that went into collections during COVID and the rest is a car that was repoed.
I’ve finally got a place to live that doesn’t kill me on bills, paid off a vehicle, and am finally able to start paying things off. I’ve called a few of the collection agencies and they’ve said that even if I pay off or settle the debts, they won’t remove it from my report. With things being in collections, and some even written off, how do I clear these off my credit report to start raising my credit?
— Ready to Raise My Score
Dear Ready to Raise,
The collections will remain part of your credit history once they’re paid off, but a paid-off collections debt doesn’t necessarily hurt your credit score.
Once you pay off or settle a debt with a collection agency, the agency should report that to the credit bureaus. According to Experian, the latest credit scoring models from both FICO and VantageScore (the main models used to determine scores that’ll be used to decide whether you can access credit in the future) don’t knock your score for paid-off or settled collections.
Some lenders still use older models to determine your score, so you can’t know for sure whether your paid-off accounts will weigh in, but paying them off gives you the best chance of raising your score. And it’ll set you up for a favorable rating as more and more lenders adopt the latest models.
If you’ve paid off or settled debt in collections but don’t see it reflected in your credit report, you can file a dispute with the credit bureaus to get your information up to date. You can file a dispute with Experian, TransUnion or Equifax online. Once you file one, the other two typically update their reports, as well. But request your free credit report from all three bureaus to make sure your information is up to date everywhere.
You could also try having the paid-off debts deleted from your credit report by sending the collector a goodwill letter. This is a document that explains your situation, expresses regret for the late payoff and explains to the collector why you want the line removed from your report — like if you’re applying for a mortgage or an auto loan. There’s no guarantee you’ll be granted the deletion; that’s up to the collector. But it’s worth a shot if you need the credit boost.
Once those debts are taken care of, you can take additional steps to raise your score. The quickest way I’ve seen to get a boost is to open a secured credit card, which requires a small deposit and gives you a low spending limit to start. I raised my score about 100 points in a few months when I opened a secured credit card with just a $200 deposit.
Dana Miranda is a Certified Educator in Personal Finance® and author of YOU DON’T NEED A BUDGET. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.
