A reader has an aggressive plan to pay off past-due debt within the year but wants to know how fast it will boost his credit.

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Question: If I pay off $20,000 of $25,000 in debts reported as a write-off as well as collections all in one year, how much would a credit score of 550 be raised by the end of that year, assuming all accounts get paid in full? – Matthew G. in Lowell, AR

Mandi Woodruff, Executive Editor at MagnifyMoney responds…

Dear Matthew,

That’s an ambitious and admirable goal that will pay off when it comes to your financial health. How soon it will pay off and exactly how much it will impact your credit score, however, is less certain.

When talking about credit scores, we’re typically referring to your FICO score. This three-digit number is generated by the Fair Isaac Corporation and ranges from 300 to 850. The higher, the better. Anything below 580 is considered “very poor,” so, with a score of 550, you’re firmly in that camp. You’re right to want to bump that number up as quickly as possible. To get into the “good” range, you need to increase it to a minimum of 670, which is a pretty significant jump.

First, the bad news…

There’s no quick-fix way to boost your credit score. You mentioned you have debt that has been written off and is in collections. Because your payment history has the biggest impact on your credit score, this type of debt can have a major impact on your credit score. Also referred to as a “charge-off,” it means the company you owed money to wrote off the possibility of you ever paying them back and balanced their books accordingly.

What it doesn’t mean: That you’re off the hook for paying that money back.

In many cases, the original lender will sell that debt to collections agencies, so it’s likely you’ve been contacted by one. Also, just because a debt has been “written off” by a lender, it has not been written off of your credit report. In fact, according to FICO, debt in collections remains on your credit report for seven years, though its impact lessens over time.

Just how much paying off your debt will change your score depends on several factors that are specific to you, such as your credit history. If your credit history is limited, then changes have a more significant impact than if you have a long credit history. The “degree” of change, based on your past credit behavior, is also a factor. So, giving you an exact number that you can expect your credit score to jump to after paying off this debt isn’t possible.

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Now, for a bit of good news…

Your credit score is constantly evolving and paying down debt is one of the most important things you can do to improve it. Each time a creditor requests your credit score, a new one is calculated. Lenders typically make reports to credit agencies on a monthly basis. As long as you make positive changes, you can increase your score. Even little improvements over time can add up.

While your payment history has the most significant impact on your credit score (35%), the amount of debt/your credit utilization ratio also makes a big impact (30%). So, if you reduce the overall amount of debt you have and also pay off your balances in full, that can seriously move the needle — not to mention the money you’ll save on interest.

Even more good news down the road…

Under the new FICO 9 rules, once a collection item is paid off, it will no longer be included in your score. However, most financial lenders aren’t using FICO 9 yet, so you likely won’t see the impact immediately.

Note, however, that you can’t just pay off the debt and be done with it. What you do after that is just as, if not more, important. Make sure you don’t put yourself in a position where you use all your financial resources to pay off this debt and leave yourself so strapped that you have to resort to taking on additional debt to make ends meet. Avoid opening new credit cards and pay your bills on time, every time.

In addition, beware of credit repair scams that promise to boost your credit score quickly. Many will request money upfront, and some will even tell you to lie or try to dispute accurate information on your credit report. If you need help managing your debt, contact a consumer credit counseling agency.

The bottom line…

Unfortunately, there’s no quick fix to send your credit score skyrocketing, and I can’t tell you exactly how much paying off this chunk will raise your credit score. What I can tell you, though, is the best thing you can do to improve and then maintain a strong credit score is to reduce and pay off your balances as quickly as possible and then pay all of your bills on time moving forward. It may take some patience and persistence to see the payoff, but with time and healthy financial habits, you’ll see your credit score continue to climb.

Good luck.

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About the Author

Mandi Woodruff

Mandi Woodruff

Mandi Woodruff has nearly a decade of experience as a journalist and has spent the bulk of her career covering the ins and out of personal finance. In 2015, she launched the career and money podcast Brown Ambition, which airs weekly on iTunes. Before joining MagnifyMoney, Mandi was the personal finance correspondent at Yahoo Finance and the personal finance editor at Business Insider. She graduated from the Grady College of Journalism and Mass Communication at The University of Georgia.

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