When I paid off the balances owed on my charge offs and collections, I gained about 80 fico points on all three reports. The only benefit to score came from the resulting reduction to my utilization. Paying the collection didn't help, it was the reducing the amount owed.
Running the fico simulator was helpful in understanding how this works. When you run the simulator against a report, it will say how much outstanding balances and any past due amounts. It will allow you to run simulations on how your score will improve by paying off these balances. However, predicted improvement is not very accurate.
Since 30% of your fico score is utilization, it can have a big impact on your score. Say you have two open CCs with a total of $600 available credit. If you owe $3000 on your collections and charge offs, your credit utilization is 500% vs the 1-9% that is ideal. 30% of the fico score is about 150 points, so you are going to see a big jump. I saw 80 pts in my situation.
What's great in your situation is that when you do this, you may well find yourself able to qualify for a prime mortgage in a few months. That's what I'm looking at doing now. Don't worry, be happy!
