I am not sure how to explain this, but I will give it a try.
Most of the people know that as the old late payments/charge-offs; age, credit score increases. My question is when does charge off start aging? I understand that an unpaid charge off is updated monthly until it is paid off but what about paid charge-off?
Example, let's say my CapOne CC was charged off in November 2015 and I paid it off on October 2018 and it was updated to show $0 balance. So once paid, would FICO look at it as a recent charge-off or a charge off that happened 3 years back?
The reason I ask is, I was just going through my 3 CB report on credit check total and found something really interesting. I believe, Equifax has a different approach to charge-offs.
Here is what's bothering me:
I had a charge off account with Citibank. Charge-off happened in March 2015 and I paid it off in April 2016. So according to Equifax on CCT, my "last negative activity" happened in April 2016 (when charge off was paid) which was 2 years and 7 months ago.
Now coming to TU and EX. Both are reporting that my "last negative activity" was 3.2 years back and not 2.7 as reported by EQ. The reason? Because my Citi was charged off in March 2015 and after the charge-off happened, I had one late payment reported in September 2015 with Bank of America (Which makes it 3.2 years).
So could it be a posibility that EX and TU starts aging CO accounts since the day it actually happened, where as EQ starts aging it after the date it was stopped updating? But if that was the case, wouldn't there be a huge difference in credit score between EQ and other two (If an old charge off was paid recently)?
Can someone who has recently paid an old charge-off account check this for me?
Also, my EQ, EX and TU reports are almost identical but my EQ score is 15-17 points lower compared to other two.
The CRAs only report information and dates, they do not "age a charge-off."
The determination of the aging effect of delinquencies, including monthly lates and charge-offs, is done via the scoring algorithm that is applied to the CRA data.
First, the "date of a charge-off" is not used in scoring. In fact, it is not a date that is reported to the CRAs, and there is no Metro 2 code provided for under the CRA credit reporting manual for reporting or storing the date of a charge-off.
The date that a creditor took a charge-off is an internal accounting measure, and exactly when it occurs is not precise or reported.
What is reported to a CRA is the date that the creditor chose to report the fact that, at some prior point in time, they took that accounting measure. Upon or after reporting that fact, the creditor is then required to provide the date of first delinquency that preceded the charge-off to the CRA no later than 90 days after having reported that they took a charge-off.
As for scoring effect of a charge-off, it is scored similar to other monthly delinquencies.
Reporting the payment history or current status as CO means that the account remains delinquent as of that date, with the period of delinquency then being the time from date of initial delinquency up to that date, which is essentially the same as reporting, for example, that the account is 150-days late. It is an alternate and accepted way to report delinquency status, and is treated similar to the scoring of, for example, a 1120/150/180 day late.
Once the debt is paid, any additonal reporting after that time does not have a current status of any delinquency, and becomes, for example, paid.
Aging is thus, similar to a paid but prior 150-day late, scored as the total period of delinquency since DOFD, with decay (aging) then applied based on the time since it was paid (removed from delinquency status).