topic Re: Paying collection accounts in Understanding FICO® Scoring

Paying collection accounts

Anonymous — Fri, 04 May 2012 02:46:34 GMT

Will settling collection accounts rather than pay off the full balance owed lower your score?

I was told by my loan processor that settling will lower my score. Is this true?

Re: Paying collection accounts

RobertEG — Fri, 04 May 2012 03:04:27 GMT

I have seen such opinions posted on the site, and those having CRs with such postings indicate a negative scoring affect, but I have seen nothing from Fair Isaac confirming the effect of settlement on scoring, or its degree. It makes no sense to me that settling should have a negative impact beyond that of the current derog level on the previously unpaid debt, but it is apparently the case.

However, settling for less, beyond the issue of scoring, permits the reporting of a special comment to the consumer's credit file, recording that fact.

There is no question that informing others that you failed to fully pay prior incurred debt is an unfavorable comment upon a manual review.

Re: Paying collection accounts

pizzadude — Fri, 04 May 2012 22:32:58 GMT

@Anonymous wrote:
Will settling collection accounts rather than pay off the full balance owed lower your score?

I was told by my loan processor that settling will lower my score. Is this true?

Collections will ding your FICO score equally, either as paid or unpaid.

Re: Paying collection accounts

RobertEG — Fri, 04 May 2012 23:58:18 GMT

Again, different opinions seem to fill the board.

My understanding has always been the same as that of pizzadude's.... that paid or unpaid, and thus how paid, is not a FICO scoring consideration, but rather an issue only upon a manual review of one's CR.

While the scoring of the collection itself may not be affected by any payment status or a how-settled special comment, that does not seem to answer the entire question.

It seems the additional question is whether how a collection is settled also enters into scoring.

Many have posted that the reporting of the special comment "settled for less" is its own major derog, and is scored. Thus, the overall scoring of the collection would, at least in the opinion of some, be affected by the manner of settlement (PIF or settled for less).

I dunno. Not a very good answer, but I have yet to see a definitive answer.

Re: Paying collection accounts

Anonymous — Sat, 05 May 2012 09:42:33 GMT

Fico scores are supposed measure likelihood of a person being late or other negative such as charge off. Hence paid vs unpaid collection being similar. Not sure how settling for less would make it worse