07-04-2010 10:11 PM
I have a couple of accounts that have closed in the early part of this year. Wondering if it is a good idea to pay them off, and how will paying them off effect my credit score if at all? or is it better to just focus on the accounts I have that are in good standing? My money is tight and I want to know where to direct the cash I have available.
07-04-2010 10:26 PM
The answer, from a current credit reporting perspective, is simple. Paying or not paying wont remove any prior derogs, so wont improve your FICO score.
But that is not the full answer.
It is not impact on your current score that is, in my opinion, the real issue.
It is additional impact of future actions they may take that are of more concern.
The debt remains forever.
If the account was closed based on delinquent monthly payments, they will most probably do a charge-off of the bad debt, in order to write it off of their taxes.
Another FICO hit.
Then they can refer or sell it to a debt collector, who can then make another post of a CA to your CR.
Depending on the lenght and amount of the debt, legal action can occur for its collection.
It depends on how much of a gambler you are. They can still do numerous things to harm you. Payment eliminates that gamble.
07-05-2010 06:35 AM
If these are OC accounts, know that paying them off will remove them from your mix of credit if they are closed. They will continue to help your length of history though.
If these are installment accounts, then, IMO, don't worry about it since they play a very small part in FICO scoring. However, if CCs, then paying them off could alter your utilization and your score. If CCs, these are still factored into your utilization. Once paid, the balance and the CL are removed from your utilization. If you have no open CCs, then you could see a significant score drop once paid. If you have open CCs, then make sure your util on those CCs are low. Once these other closed CCs are paid , if CCs, then you could also see a score change in either direction based on the reporting of these now in relation to any open CCs (again, assuming what you are referring to are CCs). Again, even if paid off, they'll continue to contribute to your length of history.
IMO, don't worry about FICO scoring. If the account is good and closed, but reporting a balance, you'd want to PIF ASAP anyway. Some lenders have been known to call in the balance on a positive, closed account. You wouldn't want to get in a situation where lates accrue or it gets CO'd because the balance wasn't PIF when they asked for it. Seems like Chase and BofA did this to a few folks in here. Certainly not to everyone though.