Should I Pay Off Accounts in Collections If I Want to Purchase a Home?

Clearing collections is often a smart step toward homeownership, but strategy matters. Review your credit report, talk to a mortgage lender, and make a plan that helps you qualify for the best loan possible while keeping your timeline in mind.

If you’re dreaming of buying a home, your credit health will play a major role in whether you’re approved for a mortgage — and at what interest rate. One common question from future homeowners is: Should I pay off accounts in collections before applying for a mortgage? The answer isn’t always a simple yes or no.

Mortgage lenders look closely at your credit score, payment history, and outstanding debts. An account in collections is a red flag because it shows you’ve fallen behind on past obligations. Paying it off won’t erase the fact that it went to collections, but it can still help. Some lenders, especially those offering FHA, VA, or USDA loans, require that all collections over a certain amount be addressed before closing. Even if not required, paying off collections can reduce your debt-to-income ratio and show financial responsibility.

However, timing matters. If your home purchase is months away, paying off a collection could cause a dip in your credit score. However, having a zero balance on the paid off debt in collections typically outweighs the temporary drop. But if your mortgage application is coming up soon, you may want to consult with a lender or credit professional before making a payment.

In some cases, negotiating a “pay for delete” — where the collection agency agrees to remove the account from your credit report after payment — can provide an even bigger boost, though not all agencies will agree.

Bottom line: Your future home is worth the preparation.