Reply
New Visitor
jacksprat
Posts: 2
Registered: ‎06-22-2012
0

Paying off collection effect on score

Assume a person had a credit card or medical bill collection account within the last two years and a current credit score of 650.  What would the effect on the score be if he/she paid the collection off?    What would the effect on the score be if the persons score was 600?  What would the effect be if their score was 700?

Moderator Emeritus
llecs
Posts: 32,869
Registered: ‎08-04-2007
0

Re: Paying off collection effect on score

Paying a collection agency to $0 has zero impact on your FICO. FICO ignores the balance for all collections and public records. It doesn't matter if you owe $0 or $10k, the impact is equal. The mere reporting of the CA is the damage.

 

Like with CAs, paying a CO relatively has no impact on your FICO. FICO is scoring off the presence of the baddie vs. the balance. However, FICO does score and consider the balance if it is a CC and is factored into CC utilization. Even if charged-off, some CCs still hurt revolving utilization. So, paying a CO'd CC that factors into util can greatly help your FICO scores in some situations.

Established Member
DougSmith81
Posts: 12
Registered: ‎06-22-2012
0

Re: Paying off collection effect on score

I had this same question. I paid off my First Premier card in March of 2012, it had been charged off but I wanted to take care of my responsibility for the debt. It now shows a zero balance, but still shows up as an adverse or negative account. Because of this I am hesitating to pay off the last of my $900 of debt because I am worried about it hurting me instead of helping me. You are saying the balance is what dirves the FICO score, as opposed to the it being classifed as negatitve?


Starting Score: TU 594
Current Score: TU 639
1st Goal Score: TU 650 by end of 2012


Take the FICO Fitness Challenge
Contributor
Davidngo
Posts: 85
Registered: ‎11-30-2011
0

Re: Paying off collection effect on score

Wth CO, the damage is already done to your FICO score.  The difference really lies in if the amount of the CO is factored in to your utilization.  If it is, paying the amount off can possiby increase your score.

MyFICO Pulled: (11/28/2012) EQ 635, TU 650, EX 661
Lender Pulled: (12/05/2012) EQ 635, TU 677, EX 641
Lender Pulled: (02/20/2013) EQ 667, TU 661, EX 648
MyFICO Pulled: (05/30/2013) EQ 712, TU 685, EX 686

Finally Hit the 700's as of 06/05/2013!!!
Moderator
MarineVietVet
Posts: 14,911
Registered: ‎07-14-2009
0

Re: Paying off collection effect on score


DougSmith81 wrote:

I had this same question. I paid off my First Premier card in March of 2012, it had been charged off but I wanted to take care of my responsibility for the debt. It now shows a zero balance, but still shows up as an adverse or negative account. Because of this I am hesitating to pay off the last of my $900 of debt because I am worried about it hurting me instead of helping me. You are saying the balance is what dirves the FICO score, as opposed to the it being classifed as negatitve?


Hi there.

 

I hesitate to speak for llecs because he is much more knowledable than I am but I will only say that the balance of any collection doesn't matter. FICO only looks at the collection itself.

 

A charge off balance however sometimes can be scored differently IF both the credit limit and balance are being reported. In that case the account is being factored into your utilization. If you pay the balance on the CO it can lower your utilization and likely help your score. But again this is only true of both the CL and balance on a CO'ed account are being reported.

 

So let me ask you; are both the CL and balance reporting? If either one is missing from your reports then this account is not part of your utilization and paying off the balance won't make any difference as far as scoring is concerned. Under a manual review it might be looked at favorably that you were willing to pay a debt.

Moderator
Revelate
Posts: 9,737
Registered: ‎12-30-2011
0

Re: Paying off collection effect on score

Just to toss it out there as it's not fully on topic; however, while FICO doesn't care whether the collection is paid or not, lender underwriting absolutely does.

 

FICO is just one part of the equation for getting an approval, and it's meaningless in and of itself without a lender pulling it (OK rental / other silly inquiries not withstanding), and since all lenders will send the application through underwriting, it's to your direct benefit to pay it off as it'll allow you to make more successful use of your FICO score.  Putting lipstick on the pig (in my case at least, YMMV) is about more than just scores.

 

 

Starting Score: EQ 561, TU 567, EX 599* (12/30/11, EX lender pull 12/29/11)
Current Score: EQ 04 673, EQ 8 707, TU 720, EX 702* (09/02/14, EX older)
Goal Score: 700 on EQ '04 (01/01/15)


Take the myFICO Fitness Challenge
New Visitor
jacksprat
Posts: 2
Registered: ‎06-22-2012
0

Re: Paying off collection effect on score

Responses to my question included the abbreviations CC, CA and CO.  I think it would be better if responders DO NOT use abbreviations, since many people reading in the forum may not know what the abbeviations stand for.

 

I am guessing that CC stands for credit card, and CA stands for credit account.  Is this correct?

 

What does CO stand for?

Moderator Emeritus
llecs
Posts: 32,869
Registered: ‎08-04-2007
0

Re: Paying off collection effect on score

[ Edited ]

Common Abbreviations

 

I used to type it out but after typing "credit reporting agencies" or "Fair Debt Collection Practices Act" a few times I began to see the value of abbreviations. When I was new I didn't know them either but after a few posts it becomes second nature.

 

BTW, CC does stand for credit card. CA stands for collection agency. And CO stands for charge-off.

 

ETA...these might help too per scoring:



Credit Scoring 101 - great for knowing what is in your credit score and to see how your score is impacted.

What Steps Do I Take - great for learning the repair process.

and Example letters - PFDs, GWs, DVs, etc.

Mega Contributor
RobertEG
Posts: 18,463
Registered: ‎03-19-2007
0

Re: Paying off collection effect on score

+1 to Relevate's post. I think it is right on the point of the effect of paying or not paying, in the broader sense.

 

The three-digit number itself does not alone provide creditors with more detailed information, such as the extent of prior delinquency, whether the consumer still has unpaid debt, how often delinquencies have occured, or the magnitude of the debt.

 

The more important issue is the broader effect of history on ability to procure new or increased credit or to get approved for a business transaction.

For example:

 

A charge-off tells creditors that, not only was the consumer delinquent, they were delinquent to the extent that the prior creditor made the determination that the consumer was/is unlikely to pay (the debt has become "uncollectible").  A serious appraisal of a consumer by a prior creditor.

 

Settlement, or "paid for less," special comment tells creditors that, in the past, the consumer failed to pay the entire debt obligation that they incurred.

 

Collections tell a creditor that the debt remained unpaid to the point of a prior creditor obtaining outside assistance in its collection.

 

An unpaid charge-off, collection, PR, etc.,  tells creditors that the consumer still has not paid obligated debt.

That may be THE factor in major apps for credit, such as a mortgage loan, apart from any FICO score issue.

 

All of these are considerations in any review of a consumer's acceptability to the grant of credit or entering into a business transaction.

 

Additionally, the fact that any reporting, such as a collection or charge-off, has passed its normal CR exclusion date, and thus may be unknown based only on a normal retrieval of the consumer's credit report, does not assure that a potential creditor cant or wont become aware of the unpaid, bad debt via other means.  They may have that information in their own database, may have a prior copy of the consumer's credit report, may, if the creditor is seeking credit in the amount of $150K or more, get a complete CR that includes the otherwise excluded derogs, or may simply ask the consumer if they have any unpaid, bad debt.

 

 

 

 

 

 

New Member
eklausmeyer
Posts: 10
Registered: ‎11-16-2012
0

Re: Paying off collection effect on score

Hey guys, just food for thought.

You're correct that the balance on the collection account does not make a difference (aside from it's affect on CC utilizations as mentioned above). However, collection agencies report to the CBR's as a form of leverage-- incentive to get you to pay. Remember that all companies that report to the CBR's pay a subscription fee for that service, to report you (and to collect information about you in an effort to collect). Long story short, once you pay off your collection account, the CA has no reason to continue reporting you. Often times, a paid off collection will stop being report (by the CA) after only a few months. However, if you never pay it, it will stay on their til the bitter end, 7-10 years. In short, paying it is always best, if you can afford it. Your goal is to get the whole account OFF your credit, and paying it is the first step.

I work full time as a credit analyst for one of the largest credit card issuers in the U.S. But, I am also a consumer trying to build my own credit!

myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Click to Verify - This site chose VeriSign SSL for secure e-commerce and confidential communications.
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+
}