Mortgage  Question?
How Much Does Credit Score Improve Payoff Collections?

I would like to get a mortgage but I have three accounts in collection. By how much and how long would it take for my credit score to increase if I pay off the accounts. I would like to buy a home but I am not sure if I qualify for a mortgage.

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

In short, paying off or settling your accounts in collection should have a positive impact on your credit score although it is challenging to specifically determine by how much, and how much time it will take, for your score to increase. Regardless of the exact improvement in your credit score, eliminating accounts in collection from your credit report should improve your ability to qualify for a mortgage.

There are several reasons why it is challenging to determine exactly how much your score will improve if you pay off or settle the accounts in collection. First, different types of accounts are scored differently by the credit bureaus. For example, medical accounts in collection carry less of a penalty than other types of accounts. So if you pay off or settle medical accounts in collection, the positive impact to your credit score is actually less as compared to paying off or settling non-medical accounts. Other factors that determine how much your score could improve include the credit score model used, how long the accounts have been in collection (the longer the account has been in collection, the less the penalty) and if you have other derogatory marks on your credit report. If you have other negative events on your credit report such as late payments, delinquent accounts or charge-offs, then resolving your accounts in collection may have a less positive impact on your credit score. In general, your credit score could improve by less than ten points or by more than 30 points, depending on your personal circumstances and the factors outlined above, but it is impossible to provide a specific figure.

In terms of the timing for when your score would improve after resolving your accounts in collection, it can take two-to-three months for your score to increase. Although the creditor should report that the account has been paid off (by reporting a zero balance) within 30 days, this does not always happen and you may need to file a dispute with the credit bureaus to make sure your account is updated. The dispute resolution process usually takes two-to-three weeks but you can speed up the timetable by providing documentation that demonstrates that you have paid off or settled the account. Please note that paying off the account in full or settling the account for less than the debt amount owed should have the same impact on your credit score as long as the account balance is zeroed out, although you may have a tax liability if you settle the account.

Based on the information above, I recommend that you pay off or settle the accounts in collection as soon as feasible and also sign up for a free credit monitoring service such as or These services enable you to review your credit report and track your credit score for free, without negatively impacting your score. Using these services will allow you to monitor if and when your credit score improves after you pay off or settle your accounts in advance of applying for a mortgage.

There is one additional point that I want to pass along and that is you may already be able to qualify for a mortgage. Having accounts in collection can make it more challenging to get approved for a mortgage but it does not automatically disqualify you. For example, the minimum credit score required for an FHA Mortgage is 580 and the minimum score required for the HomeReady Mortgage Program is 620. Having a lower credit score typically means you pay a higher mortgage rate, but you still may be able to qualify for a mortgage. We provide a comprehensive overview of your credit score and the mortgage process as well as a helpful explanation of how to improve your credit score before you apply for a mortgage that you can review.

Finally, we always recommend that you contact multiple lenders to understand how they would handle your unique situation. You can review lenders in your area by clicking MORTGAGE RATES We advise you to contact at least four lenders as qualification guidelines vary. Plus, shopping multiple lenders is the best way to save money on your mortgage.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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