Effects on your FICO when paying off a Collection or Charge Off

[sjt]

I read about a person who paid off the entire balance owning on a collection account. Once their credit report reflected payment in full they noticed a decrease in their score. Why is this. Could it have anything to do with the "date of last activity" or something else? Will there eventually be an increase in their score?

[Tuscani]

I wouldn't pay it in terms of hoping for a score increase. Sure it will look better in manual review, but that's it.

Paying could actually hurt you.. I know silly.. Why? Because it would change the tradeline to appear more recent, which would make it look like a "new" collection. You are correct. The trigger is the "DOLA" combined with ANY field in the TL that indicates derogatory status. When a derog TL is updated (for any reason, including dispute or payment) it triggers deductions in the "history" category, which is the largest chunk (35%) of the scoring pie.  

[sjt]

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@Tuscani wrote:

I wouldn't pay it in terms of hoping for a score increase. Sure it will look better in manual review, but that's it.

Paying could actually hurt you.. I know silly.. Why? Because it would change the tradeline to appear more recent, which would make it look like a "new" collection. You are correct. The trigger is the "DOLA" combined with ANY field in the TL that indicates derogatory status. When a derog TL is updated (for any reason, including dispute or payment) it triggers deductions in the "history" category, which is the largest chunk (35%) of the scoring pie.  

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Thanks Tuscani for your response!

I knew that it does not make a difference whether its a paid or unpaid collection/charge off listed, but I thought you can get a bump because the utilization rate will decrease becasue of the pay off. I also thought FICO was going to fixed the date of last activity issue with regards to paying a collection.charge off.

Its almost like you are being penalized for paying a collection/charge off, which doesnt make sense at all.

[bettercreditguy1]

I +1 the idea of paying off the lowest cards and then getting the large balances below 80% or best scenario. It will be an ego boost for you.BTW, did BOA have the highest interest rate?