Is there a reason why FICO further punishes for paying old debt? Isn't paying good?

[Anonymous]

I would think making good on a debt such as a collection should be treated differently from a person that forever ignores debt. But actually the person that pays an old debt is punished further and the person that ignores it is not.

Does this make sense? Is there another reason why FICO further punishes an individual because they wanted to make good and pay it? I know about DOLA but they at FICO should be able to read PIF + DOLA together. I just think someone that pays is better than someone that ignores. But scoring is the opposite in *some* cases as in old debt. Confused why this is.

[llecs]

Logic dictates that paying off debts = good. As you know, not always so. IMO, the FICO formula is created around what creditors want. I know of no creditor that doesn't mind paid CAs. So, I think the formula was tailored to strongly disuade people from letting accounts get to collections in the first place. Same would apply to judgments too. So whether paid, or unpaid, the risk in creditors' eyes are the same.

[Anonymous]

The FICO score is a model to predict the likelihood that the Original Creditor will lose money. By the time a Collection Account shows up on the CR the OC has already sold the debt (usually for $0.10 on the $) to a CO. Regardless if you pay or not the OC has already charged off 90% of the value of the account.

Look at it this way (from creditor's prespecive).
1) I have numerous loans with Prosper.
2) Some of those loans have fallen behind a collection agency is used to "encourage" repayment. At this point the collection account is NOT on CR. The original account is reported as past due 30day,60day,90day, etc. Score is reduced.
2a) If collection agency is successful in getting the account current the score will slowly improve.

3) If account continues to not pay the account is SOLD to a CA. At this point I get paid pennies on the $. Usually $0.10-$0.20 is common. At this point I have lost money on that investment. What happens in the future doesn't matter.

3a) The CO reports account on credit report and score takes another hit. Regardless of if the consumers pay the CO or NOT the OC (me) has already lost $$$.

Since FICO model is desinged to predict likelyhood that an account will be charged-off score doesn't improve.

What I think would be useful is to have a shortened period of reporting for paid collections.
Unpaid collection - Reports for 7 years.
Paid Collection - Reports for 3 years.

[RUSTY101]

There is another score hit that I dont feel is right too. That if you dispute a collection, they verify, then the report date updates and fico hits harder. IMO they should score off the DOFD or DOLA.

[Anonymous]

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CreditMizer wrote:
The FICO score is a model to predict the likelihood that the Original Creditor will lose money.

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Ha!  That is a more accurate way of saying it, instead of a "predictor of your ability to repay".  FICO is for their benefit, not ours.