Re: Does Paying an Old Charge-Off Help FICO: Yes or No?
11-09-2012 06:44 PM
From the confusion in what you have read, both here and elsewhere, I think the definitive answer is that there is no definitive answer.
I can opine all I want about what makes or doesnt make sense, or about what the FICO algorithm does with scoring of collections and COs, but absent any specific statement from brother Fair, nothing is definitive.
Being a risk of becoming delinquent analysis, it only makes sense to me that a collection or charge-off should be scored in impact based only on the adverse item that created its reporting.... the DOFD. Later activity has nothing to do with that issue, and thus should not affect its impact regarding its adverse scoring.
However, others swear that both updating reporting and payment or non-payment have effect. Much of that may be due to overlooking other changes that occured in their report, but the anecdotal posts seem to indicate an effect.
In my opinion, the real benefit lies beyond simple scoring. The presence of old, unpaid debt is absolutely a negative in any manual review of a consumer's credit report, and even after the adverse item has been excluded from one's CR, it may still be discovered by subsequent creditors via other means.
Looking at the bigger picture, outside of damage to the wallet, it is always better, in my opinion, to be able to answer No, I have no unpaid delinquent debt, regardless if its CR inclusion or exclusion.
The real benefit is with the scoring.....I would argue the scoring model has become a part of our Defensible Space. After all, the score was created to predict negative behavior....I for one want to understand all that which has a say in my life and demand more government regulation and oversight. With this said, the presence of old unpaid debt could be a clear understanding of how the scoring model works. If I were a lending, I would want someone with one charge-off versus someone who has filed bankruptcy....but the scoring model does not reflect that, right?