Hey there. I just wanted to put together a series of some of the most common Credit Myths that are floating around out there and clear the air on them. There is much to come and hope you get alot out of it. So Enjoy this Series!
Q: When I pay off a past-due account, such as a charge off or a collection account, it will show “paid” and will no longer be negative.
A: It is quite difficult to restore your credit without somehow satisfying your outstanding debts. However, the act of paying off a debt, in some cases, can actually hurt your credit.
Negative credit is allowed to stay on the credit report for a maximum of seven years, except for bankruptcy which may remain on the credit report for ten years. This seven year clock begins ticking on “the date of last activity” or, in other words, when the last action took place on the account.
By paying an outstanding, delinquent debt you will change the account status to “paid
collection,” “paid was late,” or “paid was charged off”– which will still stand out as a very negative listing. Furthermore,you will create a new date of last activity on the day you settle the account.
The seven year clock will reset and begin all over again. When you have outstanding debt, it is almost always prudent to seek professional help so that you may settle your debts without further damaging your credit.