Why doesnt FICO change their scoring for paid collections

[CreditGuy03]

It makes no sense that a paid collection hurts you just as much as non paid and vice versa. Logic would tell you that a paid in full debt to a zero balance should not hurt you anymore or at least at a 50% less rate than a full blown unpaid debt. A settled debt for less than full should not hurt you like maybe at a 25% less rate.

Why on earth has FICO not addressed this issue?

[Revelate]

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@CreditGuy03 wrote:

It makes no sense that a paid collection hurts you just as much as non paid and vice versa. Logic would tell you that a paid in full debt to a zero balance should not hurt you anymore or at least at a 50% less rate than a full blown unpaid debt. A settled debt for less than full should not hurt you like maybe at a 25% less rate.

Why on earth has FICO not addressed this issue?

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Because it wasn't borne out in their statistical data as a different predictor of future deliquency. 

While I certainly agree with you, and lenders seem to as well, it hasn't made it into the algorithm.  That may be changing with FICO 9, I thought I'd read something on that but then couldn't find it when I went looking for it.  Be nice if the same thing happened with tax liens too in my case, damn you Cali! .

[yfan]

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@CreditGuy03 wrote:

It makes no sense that a paid collection hurts you just as much as non paid and vice versa. Logic would tell you that a paid in full debt to a zero balance should not hurt you anymore or at least at a 50% less rate than a full blown unpaid debt. A settled debt for less than full should not hurt you like maybe at a 25% less rate.

Why on earth has FICO not addressed this issue?

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Because, simply put, lenders can make more money if they can charge you higher interest, and this allows your interest rate to be higher. The fact is, though, consumers need to know the rules of the road the same as lenders. If lenders can take advantage of a debt you already paid off, then you should not ever pay anything in collection without first making the CA agree that they will remove the entire record from your credit reports.

[cashnocredit]

Lenders want risk accuracy. A mid 600 Fico is around 10% risk of 90+ days late within a 2 year period. That means 90% of people with these scores will not be 90 days late. Creditors want scores that can more accurately predict which people will be in the 90% and which will be in the 10% which is why new generations of scores come out. At the same time they only cut them in after testing them on large numbers of customers to make sure their customer risks reflect that of the score maker's more broader dataset.

VantageScore's latest models do not count paid collections at all. They decided not to include paid collections because other elements in credit reports have been enhanced such as amounts paid each month and not just balances. The forthcomming Fico 09 may, or may not follow suit or, I think more likely, weigh paid collections less negatively than unpaid collections.