@Anonymous wrote:
Well I think jmktok has valid points.
it doesn't encourage people to pay off previous debt when they can wait 7 years for removal AND paying off the debris doesn't improve your credit score.
Also, penalizing people for paying off an installment loan is ridiculous. I know they say having a monthly payment shows you can make them but the point in having a loan is to pay it off one day. So if you can do this early it should show you have better money management skills not penalize you because the lender didn't get the last portion of interest.
Whoa wait a second 
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@Anonymous wrote:
Well I'm looking at it as someone who's paid in cash for 20 years.
I'm about to buy a house with cash again because I don't have the time to wait for aaoa.
Here you suggest you're about to pay cash for a house because you don't have time to wait for AAOA; therefore by that logic, how would not paying not be encouraging people to pay off previous debt?
Vast majority of people in America cannot pay for a house in cash. I agree with your premise that if you have plenty of cash, FICO = whatever, and I lived that life for 15 years... I can't now though, and suddenly when you need credit and you don't have it, I assure you those 7-10 years well and truly suck: that's from direct personal experience where I can't just throw cash at a house here in S. Cali.
As for the repayment of debts not helping score, some truth to that but eventually FICO and the GSE's will catch up to the rest of the lending world and that will change: if they don't, Vantage Score may well make serious inroads because for a fact UW doesn't consider a paid collection or tax lien or judgement to be the same as an open one.
Also FICO != underwriter. I too think it's silly that I'm worse of a credit risk according to FICO because I paid my auto loan off though it's possible I had compensating factors in my file so it's hard to say in my case as that was a pretty buffer with my mixed file; however, it's what we have. Will say if you can throw down 30% or more at some point there's going to be something close to a no-doc mortgage somewhere, if you are paying cash only because you can't wait, I'd talk to a lender or two and see if they'd play ball, especially one that portfolios loans themselves if you'd rather get the mortgage.
@Anonymous wrote:
And why isn't the history of having paid off installment loans as positively reflected as having a current installment loan?
The score is based on your credit history correct?
So I would think showing that you have paid successfully would weigh in.
Why isn't the history of having paid off credit cards as positively reflected as having a currently open credit card?
@Anonymous wrote:
So there is no benefit to your score when you simply pay a collection.
I can understand the logic behind this. Even when you pay a collection, you have already defaulted on your debt, and since the whole point of FICO scores is predicting your probability of defaulting, it should not matter whether you paid off a collection. It is whether there is a collection that matters.
@Anonymous wrote:
I understand what you're saying. It still to me doesn't encourage people to pay off a collection because they are already deemed unreliable.
But I would think that even if they paid it late it would give some benefit of the doubt to their willingness to pay rather than not pay at all.
Underwriting doesn't consider a paid collection anywhere nearly as bad as an open one.
As mentioned that's changing, FICO 9 already utterly discounts paid collections; however it's not used anywhere yet and it'll be even longer before it's adopted in the mortgage industry unfortunately.
I'll be first to admit some of the things in the system aren't accurate in the modern market, but it's worked for a long time and it's being improved towards modern standards; however, I wouldn't go as far as to state it's all a scam. Fact is the person who never got the collection in the first place is a better risk than the person who has any sort of one... but like you I completely agree that someone who got righteous with their debts eventually is a better risk than someone who never does.
FICO agrees apparently, and the CRA's agreed before that (VantageScore discounted them earlier, and 3.0 even discounts my paid tax liens apparently which FICO 9 should too but probably doesn't, weaksauce the IRS changed ~5 years ago), and before that pretty much all underwriters did; however, FICO is the slowest of all of them to change, and that's just the nature of the beast when we're talking algorithms that underwrite a massive amount of our economy. Doesn't help when they're a virtual monopoly either in terms of nimbleness, eventually they'll likely have to adapt as there's too much money in it, and we don't have to look further than American auto industry or Japanese electronics to read the tea leaves on that.