topic Re: Filed a dispute and score went down!? in Understanding FICO® Scoring

Filed a dispute and score went down!?

Anonymous — Fri, 30 Dec 2011 21:51:36 GMT

Hello everyone,

I yesterday purchased score watch from this fine site (in preperation to get the best reward card I can) and pulled my EQ report. I saw my first credit card (and biggest blunder) that was opened in 2002 and closed in 2007 was incorrectly being reported as simply a charge off. While the card was closed by the bank I did end up paying them back, that is I paid the collection company back. This is easily noted on my CR because there is no outstanding collection. So naturally I filed a dispute, only to find today that my score has slipped from a 686 to a 680 because of the dispute. The last 5 years after my mistakes I have had a clean record paying off 2 car loans maintaining one currently and having a CC for a year with 0-2% util. Any thoughts or experiences?

Re: Filed a dispute and score went down!?

laz98 — Fri, 30 Dec 2011 22:29:14 GMT

did it show your balance as zero, reflecting that you did pay it off?

also, paying it off won't make the chargeoff status go away. if it did in fact get charged off, even if you pay it back, the account will still show as charged off.

your score may have dropped because accounts that are being disputed are (sometimes?) taken out of scoring calculations, so maybe once your dispute is cleared, your score will bounce back.

Re: Filed a dispute and score went down!?

Anonymous — Fri, 30 Dec 2011 22:36:59 GMT

@laz98 wrote:
did it show your balance as zero, reflecting that you did pay it off?

also, paying it off won't make the chargeoff status go away. if it did in fact get charged off, even if you pay it back, the account will still show as charged off.

your score may have dropped because accounts that are being disputed are (sometimes?) taken out of scoring calculations, so maybe once your dispute is cleared, your score will bounce back.

It shows I have a balance of 1179 and past due amount of 759. I paid this off in full 5 years ago to the collection agency. As I said, I have no open collections on my CR so they took it off. My issue is not the label of a charge off, but it should be a paid charge off. I figured if it were corrected it should help my score a bit.

Re: Filed a dispute and score went down!?

laz98 — Fri, 30 Dec 2011 22:43:13 GMT

okay, so they are reporting the balance incorrectly. gotcha. hopefully they will update it correctly for you. if not, i hope you kept your payment records!

Re: Filed a dispute and score went down!?

Anonymous — Fri, 30 Dec 2011 23:23:25 GMT

Thanks laz, I am not so much concerned about winning the dispute, I feel like that is in the bag... just confused as to why my score would go down. It is the oldest item on the books, but it is also the worst. I have paid in full auto loans not much younger, so I don't think it is an issue of average age... just wanted to see if anyone had some concrete info on this to clarify things for me and others.

Re: Filed a dispute and score went down!?

laz98 — Fri, 30 Dec 2011 23:34:30 GMT

@Anonymous wrote:
Thanks laz, I am not so much concerned about winning the dispute, I feel like that is in the bag... just confused as to why my score would go down. It is the oldest item on the books, but it is also the worst. I have paid in full auto loans not much younger, so I don't think it is an issue of average age... just wanted to see if anyone had some concrete info on this to clarify things for me and others.

that's probably exactly why your score went down. when this account got taken out of score calculations, it dropped the average age of your accounts, which dropped your score.

(i realize you are looking for a concrete, 100% answer, but this is my best guess. hopefully others can help you more.)

Re: Filed a dispute and score went down!?

Anonymous — Fri, 30 Dec 2011 23:44:40 GMT

@laz98 wrote:
@Anonymous wrote:
Thanks laz, I am not so much concerned about winning the dispute, I feel like that is in the bag... just confused as to why my score would go down. It is the oldest item on the books, but it is also the worst. I have paid in full auto loans not much younger, so I don't think it is an issue of average age... just wanted to see if anyone had some concrete info on this to clarify things for me and others.
that's probably exactly why your score went down. when this account got taken out of score calculations, it dropped the average age of your accounts, which dropped your score.

(i realize you are looking for a concrete, 100% answer, but this is my best guess. hopefully others can help you more.)

Laz, you are probably right. Fantastic idea on my part, this dispute will probably take 45 days. I was planning on applying for the Citi Thank you Premier next month, now it seems like I should wait a bit longer before I start racking up rewards.

Re: Filed a dispute and score went down!?

laz98 — Fri, 30 Dec 2011 23:49:27 GMT

when you get it, let me know how well you like it! i'm thinking of getting one next year too

Re: Filed a dispute and score went down!?

pizzadude — Fri, 30 Dec 2011 23:51:29 GMT

Yep, since this is your oldest account, it lowered your AAoA when it was taken out of FICO scoring.

Assuming that the TL doesn't get deleted it will get factored back in once the dispute is resolved.

Re: Filed a dispute and score went down!?

Lel — Sat, 31 Dec 2011 00:06:29 GMT

When accounts are disputed, certain aspects are excluded from scoring, but not all of them. Financial/payment data are excluded - for example, balances and payment history. However, non-financial aspects, such as date of account opening (and its effects on average age of accounts) are still included in scoring.

ETA: sorry, I should have included my theory about why your score went down. If that was your only account with derogatory comments, then you've probably been temporarily rebucketed into the no-derogs scoring group.

Re: Filed a dispute and score went down!?

Anonymous — Sat, 31 Dec 2011 00:17:03 GMT

@Lel wrote:
When accounts are disputed, certain aspects are excluded from scoring, but not all of them. Financial/payment data are excluded - for example, balances and payment history. However, non-financial aspects, such as date of account opening (and its effects on average age of accounts) are still included in scoring.

ETA: sorry, I should have included my theory about why your score went down. If that was your only account with derogatory comments, then you've probably been temporarily rebucketed into the no-derogs scoring group.

I am confused, if what you say is accurate then why would my score go down given all my history i described in the original post?

Re: Filed a dispute and score went down!?

Lel — Sun, 01 Jan 2012 06:06:00 GMT

@Anonymous wrote:
@Lel wrote:
When accounts are disputed, certain aspects are excluded from scoring, but not all of them. Financial/payment data are excluded - for example, balances and payment history. However, non-financial aspects, such as date of account opening (and its effects on average age of accounts) are still included in scoring.

ETA: sorry, I should have included my theory about why your score went down. If that was your only account with derogatory comments, then you've probably been temporarily rebucketed into the no-derogs scoring group.
I am confused, if what you say is accurate then why would my score go down given all my history i described in the original post?

Okay, I'm going to try to do something that I've never done before: try to explain the concept of scoring "buckets". As a disclaimer I have to admit that my understanding of this topic is quite limited.

The FICO scoring algorithm recognizes the fact that it's not possible to put everyone with a credit file into a single group and generate scores that would be inherently fair or accurate. That is, a person who has just turned 19 and obtained his or her first credit card can't be put in the same group as the person whose credit history spans 40 years, has multiple credit cards, a mortgage, and an auto loan or two.

Here's an analogy - but I don't know if it's any good. Think of a community 10k race. There might be 5000 runners, ranging in age from 8 to 80. A thirtysomething former college cross-country runner might win the race, whereas the 8 year old will be far behind. Do you tell the 8 year old, "sorry, you finished #4873"? Or do the race organizers create separate categories that recognize the level of accomplishment for different classes of runners?

FICO scoring does something similar. However, it's not just limited to the length of someone's credit history. They also group people according to what's on their credit reports. For example, two people might have credit histories of 20 years. One person has credit cards, a mortgage, and an auto loan. The other has just had credit cards. These two persons can't be completely compared to each other, so they would be placed into different scoring buckets, in which their scores would based in part by how they compare to their credit "peers". If these two people were scored in the same bucket, then the CC-only person might never be able to achieve a high credit score because he would never have the same mix of credit as the person with multiple account types.

From what I've gathered over the past few years, there are lots of buckets encompassing lots of different aspects. I suspect that there's a lot of overlapping buckets, sort of like a giantic Venn diagram. One of the buckets defines whether you have derogatory accounts or not.

Before you disputed your one derogatory account, you were in a bucket that included others who had derogatory accounts. Your credit history was factored into the scoring algorithm for persons in this bucket. The formula saw that yes, you have an account that was reported as negative nearly 5 years ago. It also saw that since then, you've been a good steward of your credit. Over time, your score has improved and you compare favorably against others in the bucket.

Now that you've disputed your account, the negative payment history is being excluded from scoring. In the eyes of the FICO algorithm, you no longer fall into the consumers-with-derogatory-accounts bucket. You've been rebucketed into a pool of persons who have no derogatory accounts on their report. The persons in your new bucket are "graded" by FICO on a somewhat tougher scale. Your credit report, which was good for a 686 in the other bucket, is now only good for a slightly lower 680 in your new bucket.

This is not to say that you made a mistake by disputing, because of the effect on your credit score. If there is something truly incorrect on your credit report, then it is logical to dispute it. Eventually, as you continue on in your new bucket, your scores should hopefully improve.

I hope I got this right about buckets. If not, someone will correct me soon.

Re: Filed a dispute and score went down!?

Anonymous — Tue, 03 Jan 2012 02:21:11 GMT

@Lel wrote:
@Anonymous wrote:
@Lel wrote:
When accounts are disputed, certain aspects are excluded from scoring, but not all of them. Financial/payment data are excluded - for example, balances and payment history. However, non-financial aspects, such as date of account opening (and its effects on average age of accounts) are still included in scoring.

ETA: sorry, I should have included my theory about why your score went down. If that was your only account with derogatory comments, then you've probably been temporarily rebucketed into the no-derogs scoring group.
I am confused, if what you say is accurate then why would my score go down given all my history i described in the original post?

Okay, I'm going to try to do something that I've never done before: try to explain the concept of scoring "buckets". As a disclaimer I have to admit that my understanding of this topic is quite limited.

The FICO scoring algorithm recognizes the fact that it's not possible to put everyone with a credit file into a single group and generate scores that would be inherently fair or accurate. That is, a person who has just turned 19 and obtained his or her first credit card can't be put in the same group as the person whose credit history spans 40 years, has multiple credit cards, a mortgage, and an auto loan or two.

Here's an analogy - but I don't know if it's any good. Think of a community 10k race. There might be 5000 runners, ranging in age from 8 to 80. A thirtysomething former college cross-country runner might win the race, whereas the 8 year old will be far behind. Do you tell the 8 year old, "sorry, you finished #4873"? Or do the race organizers create separate categories that recognize the level of accomplishment for different classes of runners?

FICO scoring does something similar. However, it's not just limited to the length of someone's credit history. They also group people according to what's on their credit reports. For example, two people might have credit histories of 20 years. One person has credit cards, a mortgage, and an auto loan. The other has just had credit cards. These two persons can't be completely compared to each other, so they would be placed into different scoring buckets, in which their scores would based in part by how they compare to their credit "peers". If these two people were scored in the same bucket, then the CC-only person might never be able to achieve a high credit score because he would never have the same mix of credit as the person with multiple account types.

From what I've gathered over the past few years, there are lots of buckets encompassing lots of different aspects. I suspect that there's a lot of overlapping buckets, sort of like a giantic Venn diagram. One of the buckets defines whether you have derogatory accounts or not.

Before you disputed your one derogatory account, you were in a bucket that included others who had derogatory accounts. Your credit history was factored into the scoring algorithm for persons in this bucket. The formula saw that yes, you have an account that was reported as negative nearly 5 years ago. It also saw that since then, you've been a good steward of your credit. Over time, your score has improved and you compare favorably against others in the bucket.

Now that you've disputed your account, the negative payment history is being excluded from scoring. In the eyes of the FICO algorithm, you no longer fall into the consumers-with-derogatory-accounts bucket. You've been rebucketed into a pool of persons who have no derogatory accounts on their report. The persons in your new bucket are "graded" by FICO on a somewhat tougher scale. Your credit report, which was good for a 686 in the other bucket, is now only good for a slightly lower 680 in your new bucket.

This is not to say that you made a mistake by disputing, because of the effect on your credit score. If there is something truly incorrect on your credit report, then it is logical to dispute it. Eventually, as you continue on in your new bucket, your scores should hopefully improve.

I hope I got this right about buckets. If not, someone will correct me soon.

Thank you Lel for explaining that! I am sure many will stand to gain from that contribution. It turns out my dispute was blatantly obvious and was resolved by January 1 2012 (charge off paid in full). My score has not moved from that 680 yet... although I hope to see a boost this month since my current credit card will hit one year old.
I will apply for my first premium rewards credit card within the next 30-60 days. I will let everyone know how things go.