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Paying of Charge Off Will Increase Credit Score?

duari91
New Member

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
Birdman7
Super Contributor

Re: Paying of Charge Off Will Increase Credit Score?

Welcome @duari91 

 

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.

-Community’s scoring wisdom: Scoring Primer.
-New: MORTGAGE SECTION.
-Negative Reason Codes: CassieCard’s Score Factors.
-Calculate metrics with ccquest’s Workbook.

Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.



RIP:

(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 2 of 9
Birdman7
Super Contributor

Re: Paying of Charge Off Will Increase Credit Score?

@duari91 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. 

-Community’s scoring wisdom: Scoring Primer.
-New: MORTGAGE SECTION.
-Negative Reason Codes: CassieCard’s Score Factors.
-Calculate metrics with ccquest’s Workbook.

Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.



RIP:

(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 3 of 9
duari91
New Member

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
Birdman7
Super Contributor

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.
-Community’s scoring wisdom: Scoring Primer.
-New: MORTGAGE SECTION.
-Negative Reason Codes: CassieCard’s Score Factors.
-Calculate metrics with ccquest’s Workbook.

Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.



RIP:

(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 5 of 9
Birdman7
Super Contributor

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.
-Community’s scoring wisdom: Scoring Primer.
-New: MORTGAGE SECTION.
-Negative Reason Codes: CassieCard’s Score Factors.
-Calculate metrics with ccquest’s Workbook.

Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.



RIP:

(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 6 of 9
Boisvert
Frequent Contributor

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. 

My signature is only for inspiration.
  
  
Credit Repair Tracker: Don't get discouraged: 220pts gained to 800!


MYFICO Proud Garden Club Member: 

Message 7 of 9
sjt
Senior Contributor

Re: Paying of Charge Off Will Increase Credit Score?


@duari91 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 Platinum, Business Cash
Barclays: Arrival+ WEMC
Capital One: Savor WEMC, Venture VS
Chase: Freedom U VS, CSR VI
Citibank: AAdvantage Platinum WEMC
Elan/US Bank: Fidelity VS
Credit Union: Rewards Visa
FICO 08: (3.04.21) EX: 838 / EQ: 850 / TU: 848
Message 8 of 9
Birdman7
Super Contributor

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.

-Community’s scoring wisdom: Scoring Primer.
-New: MORTGAGE SECTION.
-Negative Reason Codes: CassieCard’s Score Factors.
-Calculate metrics with ccquest’s Workbook.

Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.



RIP:

(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 9 of 9
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