I'm about to pay down $23,000 in charged off and open accounts - will it help score?

[Anonymous]

Hi - i got into a bit of trouble two years ago with debt and loans. I ended up charging off a few credit card accounts and a Lending Club loan. However I still have some open revolving credit card accounts - at this time, they are all maxed out. I currently have no collections showing, and I have a 602 Equifax score from myFico. Here is what's on my report:

Chase Credit Card: $2,039 - paying as agreed (opened in 2011)

Chase Credit Card: $3,334 - paying as agreed (opened in 2011)

Discover Credit Card: $4,853 - paying as agreed (opened in 2011)

Comenity Card: $1,077 - Paying as Agreed (opened in 2011)

Bank of America Credit Card: $11,197 - Charged Off

Bank of America Credit Card: $3,088 - Charged Off

Lending Club: $11,411 - Charged Off

Barclays Credit Card: $5,933 - At least 120 days past due (this is with a collections agency now)

Barclays Credit Card: $2,287 - Charged Off

I also have several accounts that are paid off as agreed and closed by me

So in total, I count $44,919 in debt on my credit report at essentially 100% utilization for the open accounts

Luckily, I am coming into about $70,000 in a couple of weeks. So I plan on addressing most of this.

My current plan is to

1) Pay down all open accounts to $10 remaining

2) Pay off both Barclays cards (due to prior payments, this would cost about $6,000)

3) Pay off smaller Bank of America charge off

4) I have already entered into payment plans for a total of $1,050 a month for the Lending Club and larger Bank of America card

So in total, I'm paying off about $23,000 in debt immediately and am working to pay the two largest charge offs over time. I am not paying those off immediately because they no longer are collecting interest and fees and I wan tto establish a rainy day fund. I don't plan on applying for any credit over the next 12 months.

My questions are

1) Am I doing the right thing by paying the charge offs? I don't get a clear answer from this forum - some people seem to say paying charge offs doesn't matter

2) Are the charge offs factoring into my utilization now?

3) Will any of the cards that I have currently open reduce my credit limits dramatically after paydown?

4) Will paying off the charge offs hurt my credit score by "updating" the reporting?

5) How big of a positive will going to 5% utilization from 100% on my open accounts be? Will they offset the negative from 4)

6) Will the large charge offs I am paying monthly payments on a remaining balance monthly, or do they stay unchanged until the account is fully paid?

By the way, I tried to do PFD for all of these, none of the lenders agreed. In addition, I want to pay in full, so I don't accept any settlements

[Anonymous]

Hello, I cant believe nobody responded to this post. I was in a VERY similar situation in 2001 -- I had over $100,000 in bills due to car crash and going from a 140K a year job to zero for several years. 

I had 6 charged off cards, approx $80K worth. All were CO'd in late 1997. In 2001 my mom passed away and I came into ~$250,000 in cash. Paid EVERYTHING off. Within a month, my score went from 496 to 605. Now, I still had 8 or 9 open card accounts with smallish limits (2K, multiple $500s, multiple $3000s etc). I never even touched them for several years, just let them sit at zero. At the 6-year mark in 2003 when all of my charge-offs and late pays were about to fall off my credit report, my score was 680 something. I STILL COULD NOT GET APPROVED FOR ANY CARDS even though I paid everything off...so keep this in mind. Yes, I was able to finance a brand new vehicle but as far as unsecured loans it was a no-go. 

May be different today though, maybe they changed algorithms or approval guidelines. I certianly see some whacky approvals lately from people with multiple RECENT serious delinquenices. One guy on here even got a $25K credit card limit when 3 years before, he had 15 cards go 120-days past due. 

[stargazer25]

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@Anonymous wrote:

Hi - i got into a bit of trouble two years ago with debt and loans. I ended up charging off a few credit card accounts and a Lending Club loan. However I still have some open revolving credit card accounts - at this time, they are all maxed out. I currently have no collections showing, and I have a 602 Equifax score from myFico. Here is what's on my report:

Chase Credit Card: $2,039 - paying as agreed (opened in 2011)

Chase Credit Card: $3,334 - paying as agreed (opened in 2011)

Discover Credit Card: $4,853 - paying as agreed (opened in 2011)

Comenity Card: $1,077 - Paying as Agreed (opened in 2011)

Bank of America Credit Card: $11,197 - Charged Off

Bank of America Credit Card: $3,088 - Charged Off

Lending Club: $11,411 - Charged Off

Barclays Credit Card: $5,933 - At least 120 days past due (this is with a collections agency now)

Barclays Credit Card: $2,287 - Charged Off

I also have several accounts that are paid off as agreed and closed by me

So in total, I count $44,919 in debt on my credit report at essentially 100% utilization for the open accounts

Luckily, I am coming into about $70,000 in a couple of weeks. So I plan on addressing most of this.

My current plan is to

1) Pay down all open accounts to $10 remaining

2) Pay off both Barclays cards (due to prior payments, this would cost about $6,000)

3) Pay off smaller Bank of America charge off

4) I have already entered into payment plans for a total of $1,050 a month for the Lending Club and larger Bank of America card

So in total, I'm paying off about $23,000 in debt immediately and am working to pay the two largest charge offs over time. I am not paying those off immediately because they no longer are collecting interest and fees and I wan tto establish a rainy day fund. I don't plan on applying for any credit over the next 12 months.

My questions are

1) Am I doing the right thing by paying the charge offs? I don't get a clear answer from this forum - some people seem to say paying charge offs doesn't matter

2) Are the charge offs factoring into my utilization now?

3) Will any of the cards that I have currently open reduce my credit limits dramatically after paydown?

4) Will paying off the charge offs hurt my credit score by "updating" the reporting?

5) How big of a positive will going to 5% utilization from 100% on my open accounts be? Will they offset the negative from 4)

6) Will the large charge offs I am paying monthly payments on a remaining balance monthly, or do they stay unchanged until the account is fully paid?

By the way, I tried to do PFD for all of these, none of the lenders agreed. In addition, I want to pay in full, so I don't accept any settlements

---

I can't answer everything and I am sure others will chime in.

1. Leaving a charge off open you run the risk of getting a secondary negative line when it goes to a CA. Also depending on the date, you might still be within the SOL and could get sued.

2. Yes, the CO's are affecting your overall utilization.

3. I am guessing what you are talking about is balance chasing. That is a case by case basis. Not all cards do that. 

4. No, paying the CO will not update the reporting. The DOFD is what dictates when it's going to fall off.

5. Paying down your CC's will have a HUGE impact on your credit score. It's one of the big parts of your credit scores. How much? Nobody knows.

6. That I don't know. 

7. You could settle for less than owed if you can get the lender to agree to not add the comment "paid for less". In a manual underwrite (like to buy a house) is when it can screw you. 

Good luck and welcome.

[Anonymous]

If anything, you want to do a PFD (pay for deletion). Paying off a CO will not icrease you credit score drastically because it'll be reported on your credit score as a paid collection.

However, you need to consider the length of the account. In other words, how long you've had the account open. If you do a PFD, you'll be erasing the credit history for that card.

Another thing to consider, banks are constantly watching your credit to see if you're 'at risk'. I'll give you an example. Lets say you have 2 credit cards: 1) capital one 2) B of A with credit lines of 10k each. Lets say your Capital One goes into default, then gets charged off. B of A will drop your credit limit down or either close the account because you're now 'at risk' and you no longer qualify for that card. Banks want to make sure you stay in good standing because your 'good standing' is what initailly qualified you for the card.

Me personally, I'd rather do a PDF because I have other accounts in good standing. 

Another option you have is to send the bank a GW letter asking them to delete the negative history. This may or may not work. If it doesn't, then consider a PDF of paying off the CO account.

Hopes this helps and good luck!

[RobertEG]

Benefits of paying a debt that has already been charged-off:

1.  Many creditors will either refer a delinquent debt to a debt collector after doing a charge-off, or sell the debt to a debt collector, and thus recoup a bit more of their loss.

Addition of a collection will further affect scoring, and also preclude any PFD offer to the creditor for removal of the charge-off is the debt is sold.

2.  If the charge-off is on a revolving account, the unpaid debt continues to be included in your % util calculation.

3.  If you apply for credit that involves a manual review, having an unpaid, delinquent debt tells others that you have a current history of not paying your debt.

4. If still within SOL, the debt owner can still seek a civil judgment, which will both affect your credit score if added by the CRA, and lead to possible forced payment of the debt.

Many posts will discourage payment of a CO if the creditor is not otherwise making regular monthly updates.

That is certainly a legitimate consideration.

When a creditor makes regular monthly updates showing the debt remains delinquent, be it by reporting of the CO status or of the level of continued monthly delinquency, the FICO algorithm effectively treats that update as a positive statement that the period of delinquency on the debt has extended, and scores accordingly.

Similarly, the updated reported required when the debt is paid also effectively states that the debt remained delinquent up to that time.

Thus, updated reporting CAN affect scoring.

That fact must be balanced against the other benefits listed above.

Thus, the differing opinions you will see offerred here in the forum.

[wa3more]

Robert raises some great points. I would settle/pay off charge offs first.