It will look very bad paid, settled or unpaid
Any collection account look very bad, whether paid, settled or unpaid. Collection account is a serious negative that will damage your credit significantly. You can forget credit building with a collection account.
When you fail to pay as agreed, the original creditor will report the late payments to the credit bureaus. That alone will hurt your credit. After a period of 3 to 6 month the creditor will charge-off the account and turn it to collection. A charge off is a serious negative that remains on your report for 7.5 years. Once in collections, the account will not report any payments made until the debt is completely settled, after which it will be updated to show paid or settled.
Collection agencies also report debts to the credit bureaus. Paying off defaulted debts in collection will NOT improve your credit. The damage is done and will remain for 7.5 years on your credit report, whether unpaid, settled, or paid. That doesn’t suggest that you shouldn’t pay off your debts. In fact, there are many reason why you should!
Potential creditors look at your credit reports to see how you’ve handled past credit. Late payments, chargoffs and collections pose major problem when you’re looking for new credit.
Also, remember that credit is just one of your problems. Collection companies can (and most likely will) sue you in court. In many case they win and can garnish wages or go after your assets. Do yourself a favor and pay off that debt or negotiate a settlement.