topic Re: Does Paying an Old Charge-Off Help FICO: Yes or No? in Understanding FICO® Scoring

Does Paying an Old Charge-Off Help FICO: Yes or No?

TheNewWorldMan — Fri, 16 Mar 2007 05:52:06 GMT

I'd like one of the admins here to weigh in on this, or at least someone with extensive, inside knowledge of the scoring system. I've Googled this and done research, and the answers have been all over the map. The consensus opinion is that the credit scoring system doesn't care in the long run if a charge-off is paid, settled, or unpaid, and that you may even be dinged for paying an outstanding debt in the short run.

However, I've read in some places that if you pay a charge-off, over time your FICO will recover more quickly than if it is unpaid.

Anyone with inside knowledge of this (or at least with documented experience) care to answer this? No speculations, please: I'm looking for data that can be backed by inside knowledge or hard evidence, thank you.

Paying old Charge-offs

Skiffy — Fri, 16 Mar 2007 08:34:23 GMT

I think it does help, albeit not in the short-term. I paid a small (under $500) charge-off a few months ago, and took a short-term hit of about 20 points. Note that this chargeoff was small enough not to affect utilization, and the point hit may be due to the misreporting more than the delinquency appearing more recent than it actually was. That said, paying it did seem to help in the non-FICO internal scoring in at least one case: I was approved for a card I'd been declined for a few months prior to paying the chargeoff. As far as score simulations (on Equifax and TransUnion) went, it did seem to affect my possible scores about 20 points (in addition to the 20 I've lost), but we're not completely comparing apples to apples, either.

I can give you my experience

justin_case — Fri, 16 Mar 2007 11:56:14 GMT

I can't say that I am a guru at this or anything, but I can tell you that I just recently paid off every old debt and collection on my report and in less than 40 days, some of my scores have dropped more than 50 points. I did it to help my home buying purchase and pretty much just ended up screwing myself instead. Not that I don't recommend paying off old bills, just realize that it is going to hurt you very much initially. Of course that also depends on how old the collection is, and if it is still with the original creditor or has been sold to another agency. How many revolving accounts you currently have vs. the old account. Time of credit history, recent credit. There are really alot of determining factors, so it is very hard to judge what the score will do without knowing the exacts. In any case, for the long term effect of your report, go ahead and pay it off. But don't do it if you are just looking for a quick boost in your score.

Hope this helps a little

Yeah...yet another example of how trying to increase FICO...

TheNewWorldMan — Mon, 26 Mar 2007 03:03:57 GMT

justin_case wrote:
I can't say that I am a guru at this or anything, but I can tell you that I just recently paid off every old debt and collection on my report and in less than 40 days, some of my scores have dropped more than 50 points.
Hope this helps a little

Yeah...yet another example of how trying to increase FICO is a waste of time...you do the right thing, and you get punished for it!

Justin: the question is, are the tradelines now reporting...

Skiffy — Mon, 26 Mar 2007 18:17:15 GMT

Justin: the question is, are the tradelines now reporting correctly? I've found that they don't necessarily, and that can affect your score.

Does anyone know how long it would take for this initial...

twnkltoz — Mon, 26 Mar 2007 19:10:42 GMT

Does anyone know how long it would take for this initial hit to work its way back up again? My husband paid off two old debts last September. Unfortunately they didn't report until just now, so he lost 20 points. He also paid off some current cards this month, so that should offset it somewhat.

No, some are not

justin_case — Mon, 26 Mar 2007 20:01:24 GMT

The tradelines are not reporting correctly. As a matter of fact, I am arguing with some of the companies about the fact that I have paid them and they are still reporting the collection. I found a credit dispute letter that I filled out in full for each collection and mailed off to the three credit bureaus. They have 30 days to investigate each claim and report back to me. If responses are not received from the collection agency's in that time period, then by law, that account must be removed from my record. I spent about 7 hours researching the government law on this the other day and you have to do everything exactly as they need, but I guess we will found out how well it works in the next 30-45 days. My FICO scores finally stopped plunging downwards, but we will see what happens as more of these collections come to current activity dates.

It could take different amounts of time

justin_case — Mon, 26 Mar 2007 20:06:43 GMT

Twnkltoz: It could take different amounts of time. Remember that each bureau reports and scores differently. His score could jump back up in 30 days or it could take 6 months. There are many key factors that account for this time and how much the score is affected. The key to the score growing after paying of collections is his current accounts. How many revolving accounts there are, how much the balances are, payment history, and things like that. Even though older collection accounts really hurt your score, the only thing that can help boost your score are current, active, healthy accounts..... and a little bit of time....

Hope this helps a little

According to the Myfico website one of the things you can...

yoreljm — Sun, 01 Apr 2007 02:09:46 GMT

According to the Myfico website one of the things you can do to improve your score is:

"Pay off collections, judgments, or tax liens.
Unpaid collections, unsatisfied judgments, and unreleased tax liens are all evidence that you have not paid your debts in the past. Paying off the debts that resulted in a collection, judgment, or tax lien won't remove it from your credit report, but it will reduce the damage it causes to your score. But be aware that paying off a collection, judgment, or tax lien will make it recently active, which could cause your score to drop in the short term. " --Myfico.com https://www.myfico.com/ScoreWatch/Improve.aspx

I think this makes sense. Maybe paying the charge off is just like opening a new account...it makes your score drop in the short term. Also, when ever i'm denied credit, they like to say it was because i have "current or past delinquencies..." or "charge offs or bad debt collections...". This makes it seem like they don't care if it is paid or not. In any case, I paid off my chargeoff, and I dont know how it will reflect on my credit.

I just paid my chargeoff (which was about 4 yrs old) two...

yoreljm — Sun, 01 Apr 2007 02:18:20 GMT

I just paid my chargeoff (which was about 4 yrs old) two weeks ago. A few days after I paid it, I filed a dispute with the credit bureaus saying the status on my account is incorrect. I do this with the hopes that 1: The bill collector won't bother to submit anything because they already got paid 2: The bill collector reports the new infomation quicker than they normally would have.

New World-Short term answer is that paying it off can neg...

Credit_Author — Tue, 03 Apr 2007 12:36:48 GMT

New World-Short term answer is that paying it off can negatively affect the score because it is activity on a negative account but long term it will have a positive impact because it can never haunt you again.

Re: New World-Short term answer is that paying it off can neg...

TheNewWorldMan — Thu, 26 Apr 2007 22:38:14 GMT

Unfortunately, I simply don't have the cash reserves right now to put that to the test...I'm hoping by the fourth quarter I'm in a more favorable position.

Re: According to the Myfico website one of the things you can...

madriley — Thu, 26 Apr 2007 23:27:12 GMT

"Paying off the debts that resulted in a collection, judgment, or tax lien won't remove it from your credit report, but it will reduce the damage it causes to your score. But be aware that paying off a collection, judgment, or tax lien will make it recently active, which could cause your score to drop in the short term."

Think about what is being said here. If the recent activity date on a collection is 4 years ago, it hardly has any effect on your score. However, from what I read above it looks like all FICO sees is the "Last Date of Activity." Since FICO is just an algorithm, it seems to me that it would make absolutely no distinction between a 4 year old collection that you just recently paid, and a BRAND NEW collection. If all it sees is that date, and the date is updated to the present, how could it be that the effect would be any different than a new collection?

Re: Yeah...yet another example of how trying to increase FICO...

MercyMe — Fri, 27 Apr 2007 01:26:26 GMT

So true. I paid off an $892 charge off more than three years ago (on a loan that was 20 years old) that's still coming back to haunt me over and over and over again. Everytime the bank reports the charge off and the CRAs update, it appears as a recent charge off, my score drops and I receive an alert. To make matters worse, in some cases it appears as though the entire $10000 home improvement loan was charged off with a couple of CRAs. I must have disputed this thing a dozen times, and it looks as though I will continue to have to, until 2010. I'd have been better off just letting it drop off; and it doesn't help me to sleep better at night knowing that I did the right thing ... not when it knocks the tar out of my credit score every 6 months or so, and I have to begin disputing again.

Sigh.

Re: Yeah...yet another example of how trying to increase FICO...

TheNewWorldMan — Fri, 27 Apr 2007 01:51:38 GMT

That's why they won't get one thin dime from me without a written commitment for PFD.

The system shouldn't be like that--a person should get rewarded, or at least not punished, for trying to make amends. But that's how the system works.

Re: Yeah...yet another example of how trying to increase FICO...

sjt — Wed, 02 Feb 2011 03:21:34 GMT

I thought they made revisions to the FICO scoring model so you will not be penalized for paying a collection or charge off account.

Can anyone confirm this.

Re: Yeah...yet another example of how trying to increase FICO...

algorithmslave — Thu, 08 Nov 2012 00:51:12 GMT

sjt wrote:
I thought they made revisions to the FICO scoring model so you will not be penalized for paying a collection or charge off account.

Can anyone confirm this.

I am not sure about any revisions to the FICO numerology model.....What I do know is in my case I had a charege-off unpaid account reporting late each month for the last three years....Thus the recent activity was current. I decided to pay this small debt off. Now we will see if this has any effect on my score, for the better. I really hope it does.

Re: Does Paying an Old Charge-Off Help FICO: Yes or No?

boblohr88 — Fri, 09 Nov 2012 19:40:44 GMT

I am not sure with Fico, but believe where Credit goes Fico goes. I found that going back and paying off charge offs or write offs, will impact you in a negative way as does Credit cpanies who say they will clean it up, so you can secure a higher score. I lost 35 points from Credit repair and paid off 8 charge offs equal to $9000, it dropped another 40 points. After investigating an attorney told me paying off charge offs will only activate the count again reflecting the bad credit score... I will have the other two charge offs paid off, once non credit score is high enough enough to take the drop, but still be credit worthy.

Sorry for long reply...

Bob

100% Disabled Veteran....

Re: I just paid my chargeoff (which was about 4 yrs old) two...

basballguy — Fri, 09 Nov 2012 19:59:26 GMT

I think it varies.

If there is a charge off that's reporting against your revolving accounts still with a past due, then it's affecting your uitilization and thus if you pay it off, you take a hit on activity but you still help yourself with utilization.

Since utilization > activity, i think it's a win. But just for that case.

Re: Does Paying an Old Charge-Off Help FICO: Yes or No?

RobertEG — Fri, 09 Nov 2012 20:22:51 GMT

From the confusion in what you have read, both here and elsewhere, I think the definitive answer is that there is no definitive answer.

I can opine all I want about what makes or doesnt make sense, or about what the FICO algorithm does with scoring of collections and COs, but absent any specific statement from brother Fair, nothing is definitive.

Being a risk of becoming delinquent analysis, it only makes sense to me that a collection or charge-off should be scored in impact based only on the adverse item that created its reporting.... the DOFD. Later activity has nothing to do with that issue, and thus should not affect its impact regarding its adverse scoring.

However, others swear that both updating reporting and payment or non-payment have effect. Much of that may be due to overlooking other changes that occured in their report, but the anecdotal posts seem to indicate an effect.

In my opinion, the real benefit lies beyond simple scoring. The presence of old, unpaid debt is absolutely a negative in any manual review of a consumer's credit report, and even after the adverse item has been excluded from one's CR, it may still be discovered by subsequent creditors via other means.

Looking at the bigger picture, outside of damage to the wallet, it is always better, in my opinion, to be able to answer No, I have no unpaid delinquent debt, regardless if its CR inclusion or exclusion.