Collection accounts are poison to the FICO 8 score. We did some real-time evaluation of a consumer score, with background, to explain how the FICO 8 score is destroyed by one simple, old collection account.
How Many Points Can a FICO 8 Score be Destroyed By?
To understand how FICO can drop scores so robustly for one negative item, one needs to understand how FICO scores in buckets. If a consumer has 8 collection accounts, but they are all older than 2 years or paid, they could hypothetically have a higher score than someone with one medical collection.
It isn’t that hard to envision, honestly. Below is an example of just this happening.
For more nearly 6 years, this consumer’s credit reports have been tainted by a single collections account. This entry was a result of a medical bill for treatment received in January 2015. The bill was not fully covered by the insurance company. A nearby collection agency, who apparently bought the debt, never even bothered to try to collect. Collection companies can choose if and when to collect and report. Although the date of first delinquency was 2015, the account was still doing damage to their FICO 8 score.
On the positive side, this consumer had reported utilization at all three CRAs is at 1% and total credit limits appear as either $116K or $91K, depending on the CRA and whether or not the report includes a revolving bank line of credit.
Fortuitously, last week this toxic ingredient finally dropped from the consumers Experian file. The immediate result: my FICO 8 (as reported by Experian’s own free site) jumped from 719 to 780. The Vantage 3 score also reacted similarly, moving from 751 to 810.
This week, the offending entry also dropped from Equifax and Vantage went from 752 to 810 as well. I would assume the Equifax FICO changed similarly.
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