How to handle medical collections when buying a home

Didier Malagies • July 17, 2023
  1. Removal of collection account: When you pay off a medical collection, the collection agency may update the account status to "paid" or "settled" on your credit report. In some cases, they may even remove the collection entirely from your credit report. This can have a positive impact on your credit score because a paid or removed collection is generally viewed more favorably than an unpaid collection.
  2. Scoring models may vary: Different credit scoring models, such as FICO Score and VantageScore, treat paid collections differently. For instance, FICO Score versions 9 and newer do not consider paid medical collections when calculating scores, whereas older versions do. VantageScore models generally exclude all paid collections, regardless of the type. However, it's important to note that lenders might still consider paid collections during their evaluation process, even if they are not factored into the credit score.
  3. Late payment history: Paying off a medical collection does not erase the fact that it was previously delinquent. Late payments associated with the collection account could still have a negative impact on your credit score, even if the collection itself is resolved. However, as time passes, the impact of the late payment history diminishes, and your credit score can gradually improve.
  4. Credit utilization: Paying off medical collections may indirectly affect your credit utilization ratio. When you pay off a collection, it reduces your outstanding debt, which can lower your overall credit utilization if you have other credit accounts. Maintaining a low credit utilization ratio (the percentage of available credit you're using) is generally beneficial for your credit score.
  5. Credit report duration: The impact of a paid medical collection on your credit score lessens over time. Credit scoring models typically place more weight on recent information, so as the collection ages, its influence on your score diminishes. However, the collection will remain on your credit report for a certain period, usually seven years from the date of delinquency, even if it's paid.

Overall, paying off medical collections is generally a positive step as it demonstrates responsibility and a willingness to resolve outstanding debts. While it may not entirely eliminate the impact of the collection on your credit score, it can help improve your overall creditworthiness. It's always a good idea to monitor your credit report regularly, address any errors or discrepancies, and establish healthy credit habits to maintain or improve your credit standing.

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