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Paying of Charge Off Will Increase Credit Score?

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Anonymous
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Paying of Charge Off Will Increase Credit Score?

Hey All,

I'm currently sitting at a 634 middle mortgage credit score and need to get to 640 to qualify for a conventional loan. On the advice of my mortgage broker, they suggested utilizing the myFICO simulator to see how I can improve my credit.

I ran the simulator and found that a charge off is reporting active credit card balance of 999. When I input in the simulator to pay down all 999 of that balance, the score jumps up an average of 30 points.

The charge off is set to fall off in about a year. I was previously told that if I pay off this charge off account that it would negatively affect my credit, not improve it.

Would it actually improve my credit if I paid down the $999?

Message 1 of 9
8 REPLIES 8
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

Welcome @Anonymous 

 

That depends that’s a very complex subject and requires more data from you, for instance, is the charge off regularly updating or not? When is the last time it updated?

If it has not updated in a long time, then there’s a good possibility it will result in a decrease. If it’s regularly updating, then there’s a good chance you might get a slight increase.

But consumer simulators cannot be relied upon at all and if your broker is recommending you use the MF simulator, I think you might want to seek out a different broker, because this one’s giving very poor advice right off the bat and I would be scared of where else they may lack knowledge. Just my opinion.

Message 2 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

@Anonymous But the bad news is, you’re going to have to pay that before you get a mortgage anyway or wait till it drops. Most lenders will not give you a mortgage when you have an unpaid charge off or collection.

 

So you really don't have much of a choice. 

Message 3 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

It looks like it is still being reported every month on my report. It shows that it was last reported in August 2020.

So if that's poor advice, what should I do in order to increase my score by 6 or 7 points?

Message 4 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

Well you’re gonna have to pay that if you want to get a mortgage, thank goodness it’s reporting regularly, so therefore you may see an increase instead of decrease that you would’ve saw if it was not reporting regularly.

The best thing you can do for your mortgage scores is do AZEO. You’re gonna have to pay that either way and hopefully it won’t have negative effect on the mortgage score since it was regularly updating.
Message 5 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

fixing your scores is not an overnight thing and the best quickfix is what I just explained. For mortgage scores, you want to go without inquiries or new accounts, the longer the better and that assists.

Also I’m not sure if it would benefit any further, but if you’d like to give us your profile details and your current scores we may have more insight.
Message 6 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

If this is an old debt, it wouldn't hurt, specially if it's a very old debt, sending them a PFD letter asking for removal in exchange for deletion. 

Message 7 of 9
sjt
Senior Contributor

Re: Paying of Charge Off Will Increase Credit Score?


@Anonymous wrote:

It looks like it is still being reported every month on my report. It shows that it was last reported in August 2020.

So if that's poor advice, what should I do in order to increase my score by 6 or 7 points?


If the credit card company is reporting, the charge off with a balance, monthly and you pay it, your score will increase. If that is your only unpaid charge off, then the increase will be 20-30 point range. 

A couple of things to note is the simulator is most likely for FICO 08, not FICO 2, 4, 5 (mortgage scores). 

American Express: Platinum Charge, Optima, Business Gold, Delta Business Reserve, Business Cash, Business Plus
Barclays: Arrival+ WEMC
Capital One: Savor WEMC, Venture X Visa Infinite
Chase: Freedom U Visa Signature, CSR Visa Infinite
Citibank: AAdvantage Platinum WEMC
Elan/US Bank: Fidelity Visa Signature
Credit Union: Cash Back Visa Signature
FICO 08: Score decrease between 26-41 points after auto payoff (11.01.21) FICO as of 5.23, EX: 812 / EQ: 825 / TU: 815
Message 8 of 9
Anonymous
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Re: Paying of Charge Off Will Increase Credit Score?

The magnitude of the score change is based on utilization reduction and can vary, but thank goodness its updating regularly and should therefore be an increase.

But like @sjt said, most consumer simulators are F8. LOs may have 5-4-2 sims.

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