Okay so... #1 Rule in Credit -- ignore scores provided by Credit Karma. They are not FICO scores, they are of the Vantage 3 model and respond completely different to various changes to / aspects of credit data than the FICO model. Your Vantage scores can be drastically higher or lower than FICO (my VS3 scores are almost 80 points below my FICO scores). The overwhelming majority of lenders use FICO for credit decisions so you need to obtain and monitor your FICO 8 scores. You can start with a trial from either Experian.com (their CreditWorks option will give you scores for all 3 bureaus) or you can do a 7-day trial with CreditCheckTotal.com. I highly suggest you invest in a monthly monitoring service so you can track your progress.
You can also obtain a free Experian FICO 8 from https://www.discover.com/free-credit-score/ You do not have to be a cardholder.
Also - you are seriously over-thinking this -- your priority should be getting all negative data off of your reports -- why would you prefer a creditor see that you defaulted at one point?? A collection account is way worse than just having a lower credit score -- creditors would rather take someone with a lower score and clean report over someone with a 20-point higher score and a dirty report. Anyways...
Most people see a significant increase with the removal of negative information -- especially when it's the only negative item reporting. If one has more than one negative on their reports, they may not see a much of a score increase - if any at all - because the other negatives are still weighing their scores down. Rarely does one see a score drop -- and this is usually due to FICO scorecard reassignment -- something you have no control over and is bound to happen at some point anyway (and it's ultimately a good thing). Nonetheless, removal of negative accunt data is a crucial step in rebuilding as having a clean report is most important -- trust me, the high scores will follow with time -- and will come faster on a clean report than a dirty one.
What else is on your reports (other negatives, open accounts, closed accounts, loans, etc.)?
Don't forget to go get your FICO scores.
Ah... I see. What's your current ulization? Are you near maxed out territory? Over 30%?
Personally, if it were me, and my util was less than 30%, I'd get rid of the collection -- especially since you're apping for a loan. Util higher than 30% but less than 50%... ehh... I'd probably still get rid of the collection and try my best to explain away the high util to negotiate a lower interest rate. You can't really explain away a default... even if it's paid in full .. and it will continue hold back your scores until it falls off - even with the lowest util.
But I get your conundrum... Just in the long run, removing the collection will be better for your overall credit health. Utilization has no memory, you can always pay it down - get the additional score boost from lowered util - and refinance the auto.
Let's wait and see if anyone else weighs in on this... get some other thoughts / opinions.
Imagine my surprise when this year I have a choice to make lol
Isn't this always how things work...? LoL.
True, simulators are not very reliable, but 42 (or more) points for the removal of the only negative is certainly not unheard of. I don't know, as I said, I'd remove the collection because of its long term benefits, and worry about util & interest rates later, but that's me. When is this collection due to fall of your reports based on the 7 year reporting statute??
Are you, by any chance, able to pay some of the utilization down -- to say, less than 48%, and still pay off the collection?