Chapter Seventeen 

And a Few More Credit Scoring Notes:
Take These to the Bank

We've talked quite a bit about leveraging your legal rights in this book, but something else bears mentioning: When it comes to your credit, no law protects you against sheer stupidity. In other words the Dumb Consumer Protection Act (DCPA) just hasn't been enacted yet. And to counter this breathtaking legislative lapse, with this chapter we'll detail a few misconceptions that – although they sound "reasonable" – cost consumers dearly.

Thus far, if you've failed to make notes in the margins, mark up the pages, dog-ear sections for later reference, and so forth, you'll probably want to begin now. Heeding this chapter by itself could save you thousands or even tens of thousands (or more) of dollars in money that you surely would rather keep than push to your creditors.

First, as we mentioned in the previous chapter, some believe that if you pay off a collection or other charged-off account that it will no longer show on your credit report as a derogatory item. And, were it true, that would be a fair and sensible thing indeed. Unfortunately, our nation's consumer credit system isn't often set up to be either fair or sensible. In fact, such honorable intentions are always subjugated to sheer profit. The fact is that an account will continue to show as having been charged-off or sent to collections even if you pay it entirely. Shocking, huh?

Now, it's worth saying this: Paying your debts is an honorable thing. And your co-authors agree that, generally, good things are returned in life to those who behave honorably. Just don't expect a single score point.

The truth is in fact quite unfair: It is the mere presence of a charge-off on the credit report that depresses a credit score – not its payment status. A charged-off account that's marked as "paid in full" will kill a credit score as quickly as an unpaid one. Interestingly, the creditor score doesn't know how to read. When the scoring program sees a note on a charged off tradeline that says "paid," that makes not sense to the scoring formula. The "paid" notation might as well say "consumer is from Mars" for all it matters to the score program. For creditors, just the fact that an account EVER charged-off at all marks you as an incredibly high credit risk. And even though the fact of your repayment should add back a few points, it doesn't.

Credit Revolution: Path of the Smart Consumer
© 2007 John C. Heath, Esq., Dr. Randy Padawer, Jayson R. Orvis. All Rights Reserved.
Published by Far Cliffs Multimedia, LLC

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