Improving Credit Scores-Settlement Amount Vs. Full Amount

Any debt on your credit report that is 90 days delinquent, in a collection status, charge off status. settled for less than full amount, or paid in full over 90 days + delinquent will all affect your score the same way. If you are already seriously delinquent then your score won't be any worse off by settling and you'll pay less out of pocket. The way a settled or paid account helps is because it reports as paid and not that there is a past due amount. The credit bureaus lower your score for every account with a past due amount owing as well as a delinquency status (30, 60, 90, charge off, etc). In essence your score is getting lowered twice, once for past due and again for delinquent. If you settle or pay in full then you are only getting hit for the delinquent status. All trades are supposed to fall off your credit 7 yrs after the date of the last payment.

As others have said, when you settle the bank is "forgiving" any unpaid debts but they do have the right to send you a 1099c at the end of the tax year up to 3 years after the last payment from you. IRS always gets their money. If you owe 5k and settle for 2k, you will have to claim 3k in income when you get the 1099c because it was money you spent and since you aren't paying it back it is considered income in the IRS's eyes. This could be for anything from a credit card to a deficiency balance owed on a car that was repo'd and then sold for less than what you owe.

The older derogatory or delinquent credit is on your credit report, the less impact it has on your score. A 30 day late this month will impact you hugely where as if it was over 4 years ago, it will be a minimal impact. The important thing is to clear up and pay off old debts and not go delinquent again. As long as you stay current going forward that will help your score too. How you pay accounts for 35% of your score. How much revolving credit you use accounts for 30% of your score. For those that might not know, a HELOC is included in your revolving account ratios even though it is secured by your house. If you have a maxed out HELOC (home equity line of credit) even with perfect credit your score can drop from the mid 700's to the low 600's. You never want to get a HELOC with the intensions of maxing it out.

If you are current or less than 90 days delinquent then I would call your creditor and try to negotiate a lower rate and reduction in fees and get on a payment plan. If the rep won't help you, escalate it until you get someone that will. They want your money, not everyone can pay cash out of pocket. If they could they wouldn't be in a collection/delinquent status. I know someone that got their capital 1 cards down to 0% interest and no fees and their BofA card down to 6% and no fees. Good luck.

Funny you ask this, because we are going through the same thing. I tried calling a bank which couldn't tell us, the creditors which couldn't tell us, but finally called the actual credit reporting company TransUnion and got an answer. They said it will not negatively effect your credit, it will just be marked paid in full. Like the other person said it will still be on your report as derogatory, but it would be like that no matter if you paid the full amount or settlement amount, it was still in collections and will remain on your report for 7 years as a negative mark. He did specifically say that your credit score will go up within about a month because of it's paid in full status, but obviously will go up more when the 7 year mark is over. But in no way does it negatively effect you to pay a settlement amount. My advice if you want any further info is just to call the credit reporting companies, TransUnion, Experian, or Equifax. Hope this helps, I never thought about it until my dad asked me the same question.

The other thing that people don't tend to tell you is that you have to pay taxes the following year on the amount the company forgave you. It is considered income and you along with the IRS will recieve a form to send with your taxes and the amount forgiven to be included as income on your taxes. No one told me this and I was shocked the following year when at tax time I recieved the form (something like a 1099, I'm not sure exactly what it is referred to as). I have also been denied credit because this does show up on my credit report as amount paid off less than full amount.

I have payed settlements amounts. It will not make your score go up. I payed almost all my debts some of them settlements and unless you have written agreement they will remove it from all three credit reports once it is paid it stays on there as derogatory account. This sticks for the 7 years and lowers your credit score even if it is paid. The only thing that it will help is your debt to credit ratio which is a factor in your credit score. So unless you have a really large debt compared to your highest credit limit I wouldn't bother (though you may just want to settle the debt in fairness)

I monitored my credit score and reports monthly as I paid off debts and paying in full or settlement made no difference. Both keep my score low. The only way I am raising my score is bringing on new debt and keeping current.

Overall it will make your credit score go down.

Your score will go up slightly because the ratio of credit availability compared to the debt owed will increase. The score will decrease because of the debt settlement.

Unless your going save a lot, to the best of my knowledge you would be much better off negotiating a lower interest rate or lower payments and paying off the debt in full.

You may want to read of of the articles on msn.com in the money section. Type in "credit scores" for the search. They offer several tips on how to improve your score as well as things that can destroy it.

Any debt stays on your credit for 7 years after it's paid. If you make a settlement, it will stay on your credit but settling does not necessarily make your credit less. After you pay it off (settlement or otherwise) what will make your score go up is paying your other debts and not have anything else be late for a period of time.

We have settlements on our credit and 3 years ago we were in a mountain of debt. We have since paid all our debt off and now our credit scores are really good. So I'm speaking from experience.

You should check out Dave Ramsey, he has a show on the Fox Business news channel ever night, and he has some great books like The total Money Makeover and Financial Peace. We followed his advice and we are now debt free except our house.

http://www.daveramsey.com/?ictid=glpdr

In the long run you're better off paying the full amount. The settlement amount will help a little right now, but it will show that you just 'settled' the account; not 'payed' the account in full. You're best bet is to start making payments to get everything current and start putting everything to your smallest debt. Please check out 'Dave Ramsey'. He is on the radio, fox business network, and has his debt plans taught at a ton of churches nation wide. His teachings have drastically changed our lives!!!! You'll learn step by step what to do with everything that you have. Check out his website too. daveramsey.com Good luck!

It will improve your credit a little because your total debt will decrease by the amount you settle for. Settled accounts as apposed to payed accounts have a negative affect on your credit. The biggest benefit in paying the settlement is that it will help when you try to get a mortgage/auto loan. To get a mortgage loan, all outstanding debt must me payed off or settle, regardless of your credit score.

I know when we were paying off our credit report so that we could buy a home..the personal banker said to pay full amount ,do not pay a settlement because it shows you settled for less than owed.not sure if it helps or not on the actual score.

It DOES show up on your credit that you settled with the creditors. I used a company years ago and my credit plummeted! You can also look up on www.clarkhoward.com--anything about money. He is money guru---he does not recommend using those companies, either.

I have heard this too, that if you call your cc company and tell them that you would like to settle your account they will work out a deal with you to do so. you can even call them and have your interest rate lowered by telling them you found a lower one and will be leaving them for that co. I have never tried it, as I am lucky enough to not have any cc debt at this time, but it is worth a shot. hopefully someone else will have a much better answer lol