Recent activity on your credit history, whether that activity is on a "Good" account or a "Bad" account has a direct impact on the current credit score more dramatically than in the long run. Thus when you pay your bills on time and have no recent negative events you'll have a higher score. The converse is true: if you have a recent negative event---whether that's a late payment or a collection account being reported as paid---that negative event will lower your score immediately.
Bottom line is this: if you are preparing to purchase a home, meet with a Local Mortgage Banker for the best advice on your prequalifications. Not all Lenders and/or loan programs require that collection accounts be paid in order for a loan to be approved. Therefore you might do yourself more harm than good by paying off a collection account. Your Mortgage Banker will guide you accordingly.
I have blogged here on Trulia about the best way to settle collection accounts. See the link below.