Paying off collections reduces your credit scores.

If you have an old collection on your credit report and you decide that you want to do the right thing and pay it off, your credit score could drop - substantially.  An old collection is old news.  The credit scoring models use the past to predict the future, so the more recent activity has more relevance.  By paying off collections, you will change the "Date of Last Activity" to become more recent which in most cases will lower your scores.  To the credit bureaus, it looks more like a recent, but paid collection.  You'll likely lose many points by having a recent date of last activty on a collection account.  It seems crazy to be penalized by doing the right thing, but to be safe, pay your collections @ closing and have it updated on your report after you close on your new home.