Actually, FICO may reward you for paying delinquent balances, but it all depends on how things are reported.
I know that I did initially go up 20 points after paying a small chargeoff until the company changed the reporting to be more wrong.
Then they don't affect your utilization, and I don't know if paying them off will improve your FICO. There are, however, lenders that won't finance you -- regardless of FICO score -- with unpaid derogatories. Credit unions are a classic example.Yes, there is that qualifier: for mortgages and other loans where a human actually reviews the documentation, having the charge-off listed as "paid" may work slightly in your favor. As far as most car loans or credit card apps and FICO scoring itself, it doesn't matter.I've also heard from several sources that the banks stick together...if you have any unpaid charge-offs, a mortgage loan agency may insist you pay them off (I wonder if they get kickbacks from the other creditors for doing that...). Of course, if you have any charge-offs paid or unpaid, your FICO will likely be too low for a mortgage lender to give you the time of day anyway, but there are always exceptions...
Well, FICO specifically is designed to determine who is likely to default, file for bankruptcy, or fall 90 days delinquent on at least one credit account in the next two years. (I'm hoping Barry will correct me if I got that part wrong.)
With an unpaid chargeoff or collection, many lenders will see that you won't make restitution after things went bad, and therefore they have a higher risk of losing their money than your FICO score would indicate.
Banks want a steady income stream. They are risk-averse. They like profit, but they really want predictability.