Understanding FICO® Scoring

[KangaPong]

I have a collection that only appears on my EQ CR. It is an individual account, unpaid, with a balance of $648.00. The date of 1st delinquency is 11/2000. I would like to buy a home within the next 6 months. Should I pay the balance on this collection or wait for it to fall off my CR? My concern is how the owned balance affects my credit score. If I pay the balance will my score increase? or will my score lower because the collection will appear to be newer than it really is?

Message Edited by KangaPong on 06-28-2007 07:35 PM

[Boswd]

I have learned that paying on an old collection lowers your score is an urban myth.   If the collection changes hands with another CA then it does lower because the scoring model doesn't recognize this a debt with the original creditor only as a new collection. 

Also by paying it off won't raise your score either, FICO doesn't reward points for payments on debts that have gone bad.   There are two positives that do come from paying it off.  1.  If the CA is reporting each month those little dings will stop.  2.  It lowers your debt total, which I do believe has some factoring in scoring.

So having said that it's entirely up to you if you want to pay it off or not.   6 months is not that far off and it could still be lingering around.     It's going to fall off whether you pay it or not but you have to remember that you will still owe on it.   that doesn't end with the reporting time.   Me personally, if I am looking to buy house, I wouldn't want anything come up now or later on that could cost me.   If I were in your shoes and have the money to pay it off, I would just to get rid of it and out of your life so it can't come back to haunt or screw up any chances for the house.

[BadCredit101]

I would let it drop off of your report.  I'm sure that the SOL has expired on the debt, so legally they can't take you to court over it.  Might want to check your state's SOL though, just to be safe.  If you pay it, it will remain on your CR for 7 more years...

[Boswd]

No that is wrong.   The debt will fall off your report 7.5 years from the date of first deliquency whether it's paid or unpaid.    There is no clock resetting in the credit reporting time.  

Begining a payment plan and paying on an old debt only restarts your State's Statute of Limitations.  These are two entirely different things.

[BadCredit101]

good to know!  for some reason I thought that it reset...prolly because I looked at my CR and saw that the date had changed when I tried to dispute something...  really upset me...because i thought that it added 5 more years for it to drop...

thx for the clarification!

[KangaPong]

Personally I agree with you. Pay it off and get it out of my life, but I am afraid of opening a can of worms. I am curious though, why will it remain for 7.5 years and not just 7. Also, is paying it off as simple as mailing a check to the CA? (Do not know who the original creditor is) or do I have to go through the PFD routine?

Message Edited by KangaPong on 06-28-2007 07:36 PM