How does "settling" a collection debt affect credit?

[SunnyD]

I'm curious as to how it is reported on credit when someone "settles" their debt for less than is owed. Anyone have any idea whether this particular tactic helps, hurts or leaves the credit score unchanged?

 

[JulesMaximus]

I can't imagine a single scenario in which this would not negatively affect your credit score.

A write off is a write off and is never a good thing for your credit.

 

[highland145]

I can't imagine a single scenario in which this would not negatively affect your credit score.

A write off is a write off and is never a good thing for your credit.

This. And get everything in writing. If they say, for example, "we'll take .50 on the dollar and call it even", that doesn't necessarily mean the other 50% will not show up as a charge off. They could just be trying to get any $$ they can. In writing, the "call it even" part will not adversely affect your credit.

 

[Nik]

Whether you pay full debt or agree to pay less doesn't matter. The debt being paid sooner than later is always better. It's not like you'll get a better credit score for paying your written-off debt every month for 10 years instead of negotiating and paying off the agreed 40% of the original in full this very moment to release yourself from the debt.

 

[darkxshade]

Wouldn't you have already defaulted on the original loan once you reach the negotiating stage? At this point, the people who is collecting the debt is not the same party as the original creditor. That's why they are trying to negotiate and collect... because they had bought your debt off the creditor for cents to the dollar and leveraging that to make money. Your credit score has already taken its hit at this point.

 

[So]

Whether you pay full debt or agree to pay less doesn't matter. The debt being paid sooner than later is always better. It's not like you'll get a better credit score for paying your written-off debt every month for 10 years instead of negotiating and paying off the agreed 40% of the original in full this very moment to release yourself from the debt.

Make sure you get an agreement IN WRITING from the collections agency to remove the debt from your credit report before you pay cent one on the debt.

 

[Nik]

Make sure you get an agreement IN WRITING from the collections agency to remove the debt from your credit report before you pay cent one on the debt.

Right, that's common sense and I'm pretty sure he knows the basics like this. Just asking an understandable question about whether paying off a written-off debt early for less is better for the credit score than making longer term payments and paying it off in full.

The answer is, once it's written off, the faster you can get it off your report the better.

 

[ViviTheMage]

Can't you negotiate this with the credit card/loan company ahead of time too? Before it even goes to collections?

 

[ElFenix]

Can't you negotiate this with the credit card/loan company ahead of time too? Before it even goes to collections?

yes, you can always attempt to do so. they may or may not listen.

 

[ViviTheMage]

yes, you can always attempt to do so. they may or may not listen.

I heard it usually helps if say .. you have 10k CC debt, and have 7k cash to pay it off right there/then , they will do it. is this true?

 

[rudder]

I heard it usually helps if say .. you have 10k CC debt, and have 7k cash to pay it off right there/then , they will do it. is this true?

If you are current on your payments likely they will not. If you were several payments behind they would be more apt to make a deal.

 

[ElFenix]

I heard it usually helps if say .. you have 10k CC debt, and have 7k cash to pay it off right there/then , they will do it. is this true?

if you have 7k sitting around doing not much (or worse in today's economy, unless you bought F a year ago), i'd wonder why you haven't paid down the double digit interest rate PMITA credit card loans to begin with.


other than that i have no idea, i'm not an expert on this subject.

 

[spidey07]

It will severely damage it. The account will show closed but not "pays as agreed". Big blow to your credit.

 

[SunnyD]

So then the name of the game once a debt reaches this point is to get them to agree (in writing) that the debt in whole gets fully removed from your records once it is paid?

My question is how does this work? I thought collections activities stayed on credit reports for 7 years regardless of payment status, or am I misinterpreting this?

 

[SunnyD]

It will severely damage it. The account will show closed but not "pays as agreed". Big blow to your credit.

Well, assuming the account was already in collections to begin with, wouldn't "Closed" be better than "In Collections"?

 

[alkemyst]

I'm curious as to how it is reported on credit when someone "settles" their debt for less than is owed. Anyone have any idea whether this particular tactic helps, hurts or leaves the credit score unchanged?

credit score is affected and in many states they can still sell the account for collections.

Rinse - repeat.

 

[highland145]

As an aside, in S.C. your car insurance rates are directly affected by your credit score.

 

[nick1985]

How does someone have 10k CC debt with 7k in cash just laying around?

 

[Nik]

So then the name of the game once a debt reaches this point is to get them to agree (in writing) that the debt in whole gets fully removed from your records once it is paid?

My question is how does this work? I thought collections activities stayed on credit reports for 7 years regardless of payment status, or am I misinterpreting this?

The owner of the debt can pull the record from your credit history whenever they want if they so choose.

 

[SunnyD]

The owner of the debt can pull the record from your credit history whenever they want if they so choose.

Is the "owner" the original creditor or whomever currently has "purchased" the debt from the previous creditor?

What exactly happens to the debt per credit report once it's pulled? Is it just magically poofed and no longer has any bearing on your credit score?

 

[darkxshade]

How does someone have 10k CC debt with 7k in cash just laying around?

Simplify:

How does someone have 3k in CC debt with no cash?

 

[highland145]

The owner of the debt can pull the record from your credit history whenever they want if they so choose.

True. Through a service called e-oscar, all reports can be edited by the lender. Well, except me. I just canceled it. They went to a minimum charge/mo that I never reach and that I'm not going to pay.

 

[highland145]

Is the "owner" the original creditor or whomever currently has "purchased" the debt from the previous creditor?

The secondary collector may have no ability to do this for the first lender.

 

[Nik]

What exactly happens to the debt per credit report once it's pulled? Is it just magically poofed and no longer has any bearing on your credit score?

Let's say someone punches you really hard in the face. Does your face stop hurting the moment they remove their fist?

 

[highland145]

Let's say someone punches you really hard in the face. Does your face stop hurting the moment they remove their fist?

Not the last time.