Many people are under the impression that when an account in collections gets paid off, it gets removed from your credit report. Unfortunately that is not the case!
Companies who are members of the three credit reporting bureaus (Equifax, TransUnion and Experian) have agreements to accurately report data to the bureaus. On time payments, late payments and charge offs. If the company is a member of a bureau, it agrees to accurately report info about you to the bureau(s).
If you become seriously delinquent on a debt, your debt will be assigned to a collection agency or sold to a debt buyer. If the original creditor (the one who loaned you the money) is a member of the credit bureaus, that company will report you as 30 days late, 60 days, 90 days, 120 days and 150 days. At 180 days, your debt is reported as charged off and sold or assigned to the collection agency.
Your balance with the original creditor drops to $0 because you no longer owe them the money.
If you pay off the collection agency in full, they will report you were in collections but paid in full. This is accurate. Data accuracy is a mandate of the FCRA (Fair Credit Reporting Act).
Fair Isaac is the company which generates the FICO score. This is the most used credit score for lenders when they determine if they will loan money, the interest rate of the loan, whether or not they will rent you an apartment, etc.
FICO9 is the newest version. It now differentiates between medical debt and other debts (so medical debt does not hurt your score as much).
The big difference now is paid collection accounts no longer hurt your score. Unpaid still does. So people are finally seeing some type of reward when they pay off or even settle their non-medical debts in collections.
Having paid collections no longer harms your credit score like unpaid collections. And the members of the credit bureaus are able to meet their requirement to accurately report accounts.
Many people attempt to get these paid collections off of their reports. Prior to FICO9 this made some sense because paid collection accounts were treated equally with unpaid accounts. Now this is a moot point for your credit score.
Under FCRA you have the right to remove any inaccurate data from your credit report. If you had an account in collections then this is an accurate reporting, whether or not it was paid in full. So these accounts will remain on your credit report for seven years from the original delinquency date.
Even if the collection account was removed, the original creditor would still show as Charged Off so your score will still be impacted negatively.
The bad news is that a paid off collections debt will remain on your credit report. The good news is that under FICO9 it will no longer hurt your credit score like it would if the debt was unpaid.