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Valued Contributor
TheNewWorldMan
Posts: 2,374
Registered: ‎03-15-2007

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

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.
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in a credit-scoring postnuclear Stone Age...
Regular Contributor
Skiffy
Posts: 252
Registered: ‎03-16-2007

Paying old Charge-offs

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.
Member
justin_case
Posts: 7
Registered: ‎03-13-2007

I can give you my experience

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
Valued Contributor
TheNewWorldMan
Posts: 2,374
Registered: ‎03-15-2007

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



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!
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in a credit-scoring postnuclear Stone Age...
Regular Contributor
Skiffy
Posts: 252
Registered: ‎03-16-2007

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

Justin: the question is, are the tradelines now reporting correctly? I've found that they don't necessarily, and that can affect your score.
Valued Member
twnkltoz
Posts: 54
Registered: ‎03-15-2007

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

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.
Member
justin_case
Posts: 7
Registered: ‎03-13-2007

No, some are not

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.
Member
justin_case
Posts: 7
Registered: ‎03-13-2007

It could take different amounts of time

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
New Contributor
yoreljm
Posts: 82
Registered: ‎03-31-2007

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

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.
New Contributor
yoreljm
Posts: 82
Registered: ‎03-31-2007

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

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.

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