topic Is it better to have paid off collection or unpaid? in Rebuilding Your Credit

Is it better to have paid off collection or unpaid?

Jovian — Tue, 25 May 2010 17:57:38 GMT

An old roommate did not pay off a christmas gift which I allowed him to use my credit card to pay, and of course he never paid off the whole thing. It was back in 2005 and it his collections in 2007, so it will not fall off until 2014. I spoke with the store and they cannot remove it from my credit, but I can at least have it show up as paid off, but it will still be a negative on my credit. Will this help my score at all if it's labeled as paid off collection rather than an unpaid collection? Or is paying it going to update the account and do greater harm?

- Elis

Re: Is it better to have paid off collection or unpaid?

Jovian — Tue, 25 May 2010 18:13:24 GMT

I was able to find the answer elsewhere on the site. This sucks, my credit score will not budge if I pay it off, but if a manual check is conducted it will look better that it was paid off. I think I am pretty much stuck in the mid to upper 600s for a few more years. There's nothing else I can do, I have only two baddies in my account, but my average credit history is not very long, but has been flawless for a few years now. I guess I will have to wait until 2014 before I see a signficant jump in my score.

Re: Is it better to have paid off collection or unpaid?

Anonymous — Tue, 25 May 2010 18:18:34 GMT

Paid or unpaid doesn't matter for FICO scores. Paid looks better during a manual review.

DV the CA and if they verify, then try a PFD. If you don't need to apply for anything anytime soon, then just let it sit and keep hitting them with PFDs until they relent.

Re: Is it better to have paid off collection or unpaid?

MarineVietVet — Tue, 25 May 2010 19:38:11 GMT

@Jovian wrote:
An old roommate did not pay off a christmas gift which I allowed him to use my credit card to pay, and of course he never paid off the whole thing. It was back in 2005 and it his collections in 2007, so it will not fall off until 2014. I spoke with the store and they cannot remove it from my credit, but I can at least have it show up as paid off, but it will still be a negative on my credit. Will this help my score at all if it's labeled as paid off collection rather than an unpaid collection? Or is paying it going to update the account and do greater harm?

- Elis

Paying it will update the account and make it look more recent which in turn will hurt your score. It seems like paying off a debt should be worth something but for scoring purposes in your case it doesn't help.

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

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Re: Is it better to have paid off collection or unpaid?

Jovian — Wed, 26 May 2010 03:55:16 GMT

Thanks for the feedback, it is appreciated.

I just don't understand why this formula would be constructed this way. I wish they would do the following:

1. If you don't pay a debt that's in collection, then the formula should work how it's currently working.

2. If you pay a percentage of the collection, then it should reduce the impact of an unpaid collection by 25%.

3. If you PAY off a debt that's in collection, then it should reduce the impact on your score aby 75%.

I can understand why the impact should not be completely eradicated, because if you've managed never to go into collection then there should be a reward for that.

I bet if there were different levels of impact by a collection, as described above, a lot more people would be motivated to pay off their collections as quickly as possible.

Re: Is it better to have paid off collection or unpaid?

RobertEG — Wed, 26 May 2010 07:20:03 GMT

FICO is an analysis of risk of INITIAL default, not on how timely you pay defautled debt. FICO uses past defautls, not payments on bad debt, as their primary scoring factor. i understand your points, but that simply is not what FICO scoring is. It is not an analysis of repaymet on defauled debt,it is an analysis of likehood of initial; defaiult and once that occurs, how serious you let the default then progrees