Why Did My Credit Score Drop When A Collection Was Removed?

Having a collection account removed from your credit report should help, not hurt your credit score So why does the opposite sometimes happen? There are a few potential reasons why your credit score could drop after a collection deletion

The Collection May Have Been Updating

One common reason for a credit score drop is that the collection account was still being actively updated by the collection agency right up until it was deleted.

Accounts for collections that are updated often are seen as more up-to-date and relevant than old accounts that disappear from your report. So if an active collection goes away, it could hurt your score.

Some key things to know

• Collection agencies often keep track of and report collections for years after the original due date. This keeps the collection current.

• While a collection agency is still reporting an account, credit scoring models see it as a new problem that will never go away.

• When a frequently updated collection suddenly drops off your report, it can remove those active updates at the same time.

• This makes your credit report look like you lost an open, recent collection account, which can lower your score.

Credit Mix Can Be Altered

Another potential reason your score dropped is that removing the collection changed your overall credit mix.

Credit mix is made up of all the different types of accounts on your credit report, like credit cards, store accounts, mortgages, installment loans, and so on.

Lenders like to see a healthy mix of different account types on your report. If removing a collection account took away your only installment loan, for example, it reduces your mix and diversity of credit.

• Credit scoring models look at your mix of accounts, not just the total number.

• Eliminating a collection could remove your only account of that type, changing your credit mix ratio.

• This change in credit mix can sometimes lower your score, depending on the rest of your report.

The Algorithm Was Re-Calculated

It’s also possible your score dropped for no obvious reason other than the algorithm behind it being re-calculated.

When a change occurs on your credit report, like removing a collection, all the different factors that make up your score are re-assessed:

• Your payment history, utilization, age of accounts, etc are all plugged into the algorithm again.

• This new calculation using your new report data could result in a lower score, even when the change seems positive.

• So the score drop may be an indirect result of rescoring your credit report, rather than directly due to the collection removal.

• If this is the case, your score should rebound or normalize again on subsequent score updates.

How to Minimize Score Drops from Deletions

If you’re concerned about your score dropping when negative items fall off your report, here are some tips:

• Don’t delete old collections that are no longer updating. Leave outdated, inactive collections alone so they fall off naturally.

• Ensure you have a mix of different credit account types in good standing. Avoid having a report made up of only credit cards, for example.

• Wait to check your scores until after the account has been deleted and your credit report fully updates. Scores tend to normalize better a couple months after the change.

• Remember that small, temporary drops are fairly common after significant credit report changes. Don’t panic if your score dips a bit initially.

The Takeaway

Seeing your credit score drop after a negative item is removed can be incredibly frustrating and confusing. But in most cases, it’s either a temporary shift or caused by ancillary factors like a change in credit mix or loss of recent updates.

As long as your score doesn’t drop more than 10-20 points, it’s usually nothing to worry about long-term. The benefit of getting the collection deleted far outweighs any short-term score fluctuation. Just give it a couple billing cycles for your score to rebound and reflect the positive changes.