It seems logical—pay off that nagging collection on your credit report, and you should see an improvement in your credit score, right? Well, that's not exactly how it works. In fact, paying off an account in collections may not do anything to improve your credit score in the short run.
Unless you negotiate a specific arrangement with the collection agency at the time of payment, most agencies will simply update your account so it reports to the major credit bureaus as a "paid" collection instead of an "unpaid" collection. Consumers generally enter into this type of arrangement thinking it will improve their credit score, only to find out later that credit-scoring models basically treat an unpaid collection in the same manner as a paid collection.
Both are negative marks on your credit reports, and both will continue to to hurt your credit scores for quite some time. While collection accounts, paid or unpaid, can remain on your reports for up to seven years, the good news is the older collections will have a lesser effect on your overall credit score as time passes.
