I wanted to ask some opions on this subject. This quirk was brought to my attention on The Motley Fool. A poster over there was asking questions about paying on a old debt. They were nervous about doing so because they were not sure what that would do to their credit. They were planning on entering into a payment agreement with a CA to pay off a delinquent debt. They mentioned that they were told that their credit would be harmed starting from the date they start the plan though when they finished they payment plan. To me, it sounded like they were being lied to by the CA. The CA was spouting pre-1997 FCRA rules that reset the 7 year clock whenever there was activity on an account. So I simply corrected the missinformation and explained the rules about when the 7 year clock starts. Then poster then wrote back that they had recieved this information from a reliable source. Huh? Didn't sound very reliable to me. After some more questions, the whole story came out, which I will relay here. They were told by Fair Issiacs that their FICO score would take a severe hit when they started paying the old debt, and it would continue to hit until they finished the program. Then only age would improve their score. The poster had, as many newbies do, mixed up FICO and the FCRA and used them interchangably. However, this got me thinking. If this is true, then FICO is a giant step backwards for the credit industry. Here is why. In 1997 Congress changed the FCRA to establish when the 7 years clock starts on delinquent debts. They set this at 180 days past the event that led to the orignal delinquency. The reason for this was to remove the dis-incentive for people to pay on old debts. It also removed the ability of the creditor to make up a charge-off date in which to start the clock. However, FICO punishes you for paying a deliquent debt. The payment becomes the date of last activity. FICO hits harder for delinquent debts with a recent DOLA than those with an older DOLA. More and more creditors are using FICO to grant credit decisions. So therefore, it would seem to me that this combination put the credit industry back to where it was before 1997 when debtors were punished for paying on an old debt. I wonder what the FTC thinks of this? I know that the FTC has no juristicion over FICO. But since FICO is not so engrained into the industry, they have to consider its impact. I did point out to The Motley Fool poster that the negative tradeline must be deleted from their CRA file after 7.5 years from when they defaulted. Then the tradeline will no longer factor into the FICO score. Anyone want to discuss? I'm I crazy to think this?
I don't think you are crazy cable666. Actually, I think you have hit it right on the head! I had never thought of FICO taking the credit industry backwards, but your analogy makes perfect sense to me.
Great thread! It really does make sense that paying a bill does affect your FICO, thus making NO sense on paying old debts. I agree that FICO does negate the FCRA in that regard. We really do take the brunt of everything, don't we?
Yes it is a step backward but only for those "in the know" like us. How many average cc users know about the FCRA or FICO for that matter? FICO is becoming more common, but people still do not understand the factors that go into the score. If they did, they wouldn't even bother worrying about small debts or debts older than 4-5 years. What about focusing on lowering the balances and cutting up too many cards? IF more people had knowledge of how FICO works, and credit in general, they wouldn't be slaves to the cc industry that punishes for late pays and then uses all sorts of guerilla tactics to collect on unpaid debts. If I knew what I did know about credit scoring, I wouldn't have bothered to pay off that old medical bill of $200, as it lowered my score and did nothing to help the OC. Some low life debt collector did make $200 off my honesty and I got punished for that.
I am proof it happens EXCEPT my account in question was already paid off in 99. It was with a Cap One card. it was reporting correctly R9. I contacted Mr. Cooke last year and asked for forgiveness, the best he could do was R5 and "settled for less than full" (which is whatI did in 99-settled) Mr Cooke FINALLY fixed it October of THIS year (1+ yrs. later) my score dropped 40+ points. I was at 683, and I thought once this was fixed it would be over 700, nope I now sit at 640, been there since Mr. Cooke fixed it. WHY? Cause the last "updated" date was 3/99 now it's 10/02, looks like I was recently 120 days late. It's now my #1 reason for a bad score, when before it was "too many active accounts" Go figure.
Hope I'm not hijacking the thread but... Another interesting thing about FICO is that it's based on both Bad credit history (over the last 7 years) and recent account history. Being a logic nut, this thought came to me: If you have Bad credit history, who will give you a credit account? If you can't get a new credit account (which would become a recent account after some months or years), how can your FICO score ever improve? Essentially, FICO is giving it to the consumer twice, with no grease, and somehow placing the blame squarely on the consumer. "Your credit is poor, no one should extend credit to you. Based on our omnipotent, yet uninvolved and highly disclaimer saturated, 3rd party evaluations of your credit history, no one has provided you with enough retail accounts, therefore, no one else should extend credit to you. By the way, thank you for the extra $4 you paid for your report - our children's teeth look wonderful now." Not to mention "You had great credit (according to our system) and now you have too many retail accounts - sorry, gotta drop your score." Consumer observation: my FICO "factors" told me that "I have $732 in past due debt - the average consumer has $10,000 in past due debt." My question, then, is Why is my FICO score so low? And why am I so far below the national average? So if Joe Consumer tries to make good on a debt, he runs smack into a group of corporations (not all of which are American) that can't read, comprehend, obey or agree on the FCRA. So he ends up on a board like this, decrying the system, calling CRAs until his fingers are calloused, cursing and pulling his hair, and looking for help from people who aren't making a dime off him - while the people who make the dimes thump their chests about their "data integrity" and foward thinking consumer modeling. FCRA? Ethics? Honest Consumer service? Why doesn't FICO just take over for the CRAs, hand us our name tags and let us get to the goose-stepping at hand? Sorry for the rant - but damn if it doesn't just make your blood boil sometimes. Hope everyone's having happy holidays !!
From www.myfico.com "Details on late or missed payments ("delinquencies") and public record and collection items â?? specifically, how late they were, how much was owed, how recently they occurred and how many there are. A 60-day late payment is not as risky as a 90-day late payment, in and of itself. But recency and frequency count too. A 60-day late payment made just a month ago will count more than a 90-day late payment from five years ago. Note that closing an account on which you had previously missed a payment or satisfying a judgment or collection item does not make the late payment or item disappear from your credit report." It would seem to me that the longer your accounts stay late it raises your score more than paying off the bad debt.
Here's a BIGGIE! I have a CA tradeline that had last reported a couple of years ago. They re-reported 11/2002 changing only that date and NO other info, not amt, not DOLA, nothing. My FICO dropped 30 points. I had pulled my report and score the day before and then again that day. NOTHING but that one date changed. Boy was (am) I ticked. So yes, it would seem the FICO score is weighted more towards when a creditor last reported on a tradeline then when any "real" activity last occured. (Sears knows this and that must be why they update even sold charge-offs monthly.) Thusly, by making payments on a previously dormant CA account, when they update your tradeline you will take a hit. The flip side might be that if you have some dormant but positive tradelines - get the creditor to update. Ask for a CL increase. If it's a cc or store card buy something - even if it's trivial. (Buying and returning after a long no activity period might make them mad and get your acct. closed - don't know.) 0
Re: Here's a BIGGIE! The last 24 months are the most important in FICO credit scores. Yes its frustrating,pay a bill and your credit score is going down. This bad credit system has been outlawed in many parts of the world. It is illegal to use credit reports in most countries in Western Europe because they have recognized the unfairness. You must understand, this system was invented to make bucks, not treat the consumer fairly. But we must continue to fight it, convince our law makers it is wrong. We lost the battle in Japan, they adopted our credit system in 1999. As corny as it sounds, write, or send an e-mail to your Congressman. I heard you could get his/her email from aarp.com. I will do the same as my congressman is on the credit and financial institution committee, and has a good track record of responding to constituents. We need law changes. Don't believe me? When conversing with an executive as to why a Western European company abused their US workers whereas they did not in their home country. He replied, "the US laws allows us to do what we have done." We need legal protection.....
A specific collection account listing on a TransUnion file report I'm reviewing does not contain a field for "DOLA." There is a field containing a date named "UPDATED," and one that gives the ">STATUS AS OF 05/2002: COLLECTION ACCOUNT.<" To what are you referring with the term "DOLA"?
Don't ever apologize for this. Folks need to get in a real up roar about this one of the biggest gimmicks ever fostered of onto the consumer.
