The reason behind the score drop is because, as time goes by the negative affect of the CO diminishes and the age of the account is actually helping you, so once the entire TL is removed it lowers your AAoA's (Average age of accounts) not you length of credit history (unless the CO was your oldest account on your report/s) your length of credit history is your oldest open/closed account) and accounts for 15% of your score.
CO's are counted as active TL's and contribute to your AAoA's, the older they get, the less negative impact they have towards your score, and in some cases, after 5 or 6 years, they actually start to help you, because the negative impact has diminished, but the age of the accounts actually help towards your AAoA's, and when they either fall off or are removed VIA, dispute etc.... you could see score drops (odd huh?) but true.
You said you had 8 derogs, now 7 after the CO was removed, are the other 7 derogs CO's? Or are some of them CA's (Collections)?
Collections are not considered active TL's and do not count towards your AAoA's, so when a collection drops it will not lower your AAoA's, and you could see a nice score increase YMMV of course, but if the 7 remaining derogs on your reports are CO's and almost 7 years old and are due to drop, you may not see a score increase at all because, you are losing 7, 7 year old accounts that are contributing to your AAoA's, once they drop, it could kill your AAoA's and actually hurt your score, but you should see an increase to your score once the last one or two CO's fall off (due to being re-bucketed) with a clean report.
A CO is one of the worst things that could be on your reports, the newer they are, the more they hurt your score, the older they become, usually towards the 5th, 6th and 7th year, they have actually almost lost all negative impact to your score and again, actually start helping more than they hurt, solely because of the impact they have towards your AAoA's.
However, even if you see score drops as each CO falls off and your report becomes derog free, you will be re-bucketed, and provided you have positive TL's on your report/s, your score/s will be able to go higher than ever before because you are in a new bucket with a clean report.
But as Laz has said, you might see score drops until the last one or two CO's falls off, once they fall off and you are re-bucketed you could see a significant score increase right away, all of this really depends on what else is on your report/s, such as positive TL's that have some age to them etc....
I hope this makes sense to you, I am really sick (still) and my head is very clouded, but I think I have given you accurate info, I will have to re-read my reply after I submit it and hope for the best
If I am wrong, someone will chime in and correct me.
Also you might be rebucketed now anyway. We really don't know (at least I don't think) how many collections past the first dump you into a second, or third, or higher order bucket even. Presumably there's not a separate bucket between 1 and 2 collections (or on tax liens for that matter as another example), but between those and 10 collections? Anecdotal evidence suggests they do this for inquiries, it's reasonable to assume it's in other parts of the scoring model as well.
I think deleting almost any negative is ultimately a positive in the mid-term time horizon, regardless of what the short-term score impact is.
