Score Dropped After Paying Collection

Anonymous · ‎04-06-2015

I'm a bit perplexed regarding the effect paying off a collection is now having on my score. About 2 weeks ago, I reached an agreement with a CA to settle a collection (stemming from a 2013 charge-off) in exchange for a Settled In Full notation and a zero balance. This is finally beginning to register on my reports, but it is showing up as a "New Collection" on Experian, dropping my score 13 points, and while showing a $0 balance on TransUnion, it is not marked Settled In Full, but "Payment After Charge-Off/Collection", and my TU score has now dropped 12 points. I fully expect this to hit my Equifax report in the next day or so. Does anyone who why this would be, or if this is even right? Should I dispute this account (with the secret hope that it could possibly be deleted altogether)? I didn't expect paying this to significantly improve my score, if at all, but I also surely did not expect it to hurt my score. I understand that can happen if a collection is older than 2 years, but this was not, it's going on 2 years old this year. My reason for paying it off was simply because I want to get a mortgage this year and the balance had to be zeroed out, period. But the resulting score drop doesn't help my cause and basically defeats the purpose. It begs the question, what incentive do I have to pay off my debts if I'm punished with a decreased score for doing so? As opposed to just calling it quits and filing for Chapter 7. At this point, it has me seriously considering the latter. Any advice will be much appreciated.

gdale6 · ‎04-06-2015

@Anonymous wrote:
I'm a bit perplexed regarding the effect paying off a collection is now having on my score. About 2 weeks ago, I reached an agreement with a CA to settle a collection (stemming from a 2013 charge-off) in exchange for a Settled In Full notation and a zero balance. This is finally beginning to register on my reports, but it is showing up as a "New Collection" on Experian, dropping my score 13 points, and while showing a $0 balance on TransUnion, it is not marked Settled In Full, but "Payment After Charge-Off/Collection", and my TU score has now dropped 12 points. I fully expect this to hit my Equifax report in the next day or so. Does anyone who why this would be, or if this is even right? Its correct when it updates to report the paid off balance the status date comes current and that is what Fico sees so it is a new collection to Fico.

Should I dispute this account (with the secret hope that it could possibly be deleted altogether)? GW letter asking for it to be removed is the way to go, disputing valid debt isnt something we would advocate. http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/GW-letter-Q-amp-A-Examples-and-GW-Success-Stories/td-p/1573680

I didn't expect paying this to significantly improve my score, if at all, but I also surely did not expect it to hurt my score. I understand that can happen if a collection is older than 2 years, but this was not, it's going on 2 years old this year. A collection or CO that hasnt reported in a few months can cause a drop of a few points this info here about 2 years is not true. My reason for paying it off was simply because I want to get a mortgage this year and the balance had to be zeroed out, period. But the resulting score drop doesn't help my cause and basically defeats the purpose. It begs the question, what incentive do I have to pay off my debts if I'm punished with a decreased score for doing so? If the derog account hasnt updated in awhile its always going to cause a Fico score drop when it updates unless you can get the PFD. When apping for a mortgage I would advise that you not pay off anything that you cannot get a PFD on till after the mortgage pull.

As opposed to just calling it quits and filing for Chapter 7. At this point, it has me seriously considering the latter. Filing a BK now will delay your mortgage by at least 2 years for FHA and I believe 4 years for conventional so I dont recommend it.

Any advice will be much appreciated.

takeshi74 · ‎04-07-2015

@Anonymous wrote:
Does anyone who why this would be, or if this is even right? Should I dispute this account (with the secret hope that it could possibly be deleted altogether)?

That's how it works. Be sure that you very carefully and thoroughly research before dealing with your derogs as it is possible to make things worse. I'd generally advise aiming for a PFD first as you have a bit more leverage when you have not paid. After paying all you can do is GW. Since the information is valid you have no basis for dispute.

Don't overlook the Rebuilding subforum as it is intended for topics like this.

@Anonymous wrote:
I understand that can happen if a collection is older than 2 years, but this was not, it's going on 2 years old this year.

2 years is the falloff for HP's. It is not any sort of demarcation for derogs IIRC.

@Anonymous wrote:
But the resulting score drop doesn't help my cause and basically defeats the purpose. It begs the question, what incentive do I have to pay off my debts if I'm punished with a decreased score for doing so? As opposed to just calling it quits and filing for Chapter 7. At this point, it has me seriously considering the latter. Any advice will be much appreciated.

Work on the GW. Filing for BK isn't going to help with this. I know this is frustrating but don't give up on it. Rebuilding is a long slow process and will take even longer and be more painful with a BK -- I've been there myself. Again, be very careful with your research. Ask questions, Refer to other resources on addressing derogs as well.