I read on this forum and elsewhere that even if you pay off a collection or charge off account, it will bring down your FICO score instead of improving it, since the date of last activity is being updated and read as a new negative entry. I have a few collection accounts of under $500 and I am scared that if I pay them without the collection agency agreeing to delete them, (many of them have refused to delete things, saying it must be reported as a paid collection), my score will plummet. However, I will be applying for a PRIVATE student loan next year (Sallie Mae), and most lenders will want to see zero balances on these accounts, if not a higher score. MY DILEMMA: 1) If I don't pay them off, my date of last activity won't be updated negatively and so my score won't decrease, but they will still show up on my report. or 2) If I do pay them off and they're not deleted, my score will decrease. It's like a no-win situation, and I need this loan next year! Which option should I go with? Is it better to have the higher score, or better to have the lower score showing zero balances?

Claudette,

First your statement that paying will only hurt your score is correct, but not because of any change in the date of last activity. It is illegal for the collections people to change that date. It drops because the date reported becomes more recent then they update to a "Paid collection" status.

Read all that you can on the board. this will take some time. don't do anything untill you understand the repair process, or you will only make matters worse (and paying a collection WILL make it harder later) run a search for "debt validations" and "1-2 punch". that will get you on your way.

As for your upcoming student loan questions, is it the traditional student aid, or a private loan? Assuming it is a federally guaranteed student loan (which is mostly what Sali Mae deals with) then your credit won't matter. They will not even pull your credit. The only thing that will stop your federally guaranteed student loan will be any defaulted government loans.