Re: Paying off collection effect on score
07-02-2012 12:10 PM
+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.
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.