Should I pay a collection account?

What is the statute of limitations for reporting a collection account? Why pay a collection account if it won't help your credit?

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Oct 20, 2009
Collection accounts credit reporting
by: Gerri

Under the Fair Credit Reporting Act, collection accounts can be reported for 7 years and 180 days from the date you first fell behind with the original creditor. After that time, the collection account must be removed, whether it has been paid or not. The date of last activity or date the collector received the account does not change the reporting period.

Unfortunately, paying a collection account will not help your credit reports/scores unless you can negotiate to get the item removed in exchange for payment.

Besides the moral and ethical issues of paying debts you incurred, however, there is a practical reason for paying debts. If you don't, you could potentially be sued for payment. If that happened and the creditor obtained a judgment against you, it would start a new reporting period. And a judgment is a seriously negative remark on your credit.

However, because paying a collection account doesn't improve your credit, you may be able to negotiate to pay this account off for less than the full balance and put it behind you. (That's assuming you can't afford to pay the full balance.)

Dec 14, 2009
Debt negotiated
by: Maxy

I negotiated with a credit card company, I paid it and received, but I received a letter from the IRS that I owed taxes on the portion that wasn't negotiated.

Note from Gerri: Yes, Maxy, unless you wipe out a debt in bankruptcy the lender is required to report forgiven debt in the amount of $600 or higher on a 1099. However, you may be able to avoid paying taxes on that forgiven debt if you meet IRS standards that show you are insolvent. Consult a tax advisor for advice.

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