It improves but collections are an adverse notice on your credit report that stay for 7 years. Its different from just holding a high balance on the card.
I once had a collections report on my credit history. I paid off the debt and asked them to remove it, a few days later it was gone as far as I could tell.
Not that everyone's experiences will be like this, just pointing out it is not necessarily always 7 years on the report.
Yes - unpaid charge-offs are more derogatory than paid ones - I'm not sure that hits (say) a FICO score but lenders that look at a full report can tell the difference.
The score almost means nothing with them present.