does a settlement do special damage?

Yes, a settled debt usually reports as "settled for less than full", or similar wording.

As for "damage", its impact on a credit score is the same as payment in full, or even not paying. The fact that an account went to "Charge Off" status is all that matters.

A "settled" account will appear more favorable during a "manual credit review" than not paying, but less so than "Paid In Full".

The benefit of a settled account is that the collection activity is brought to an end, at a discount.

As a note, a settled account usually brings a "1099" form for income of the forgiven amount.

 

I view settlement without PFD as a dinner bell for other CAs and JDBs.

Since the FICO help is nil, why not let 'em put "Settled for less than <whatever>"? ... at least it puts the other wolves on notice that you negotiate.

If you're gonna be on the mooch list, at least don't let 'em think you're an easy mooch.

 

1099s are only issued if the forgiven amount is $600 or over.
Bank A forgives you $575.
Bank B forgives you $575.
Neither will send you or the IRS a 1099.

 

You're also free to negotiate that the debt is doubtful and disputed, <yada yada> and there's not forgiveness of indebtedness and no 1099 or form of similar import will issue. Put it right in the settlement agreement. Put a clause in that if they do send a 1099 they'll pay you $1,000 for your trouble and pick up the extra tax, interest and penalties. Accounting departments do screw up after the fact.

If they want the money badly enough they'll give you this. It's no skin off their nose.

 

PFD = Pay For Delete, a/k/a "Credit Bartering" - Total removal of the tradeline
CA = Collection Agency - Collects money, typically for 20% contingency.
JDB = Junk Debt Buyer - Buys Debt the OC doesn't want to send directly to suit or continue to hold. Typically for 2 to 25 cents on the dollar, depending on prospective collectability. LVNV, Asset, Sherman, RMA, Midland, Cavalry, etc.

 

Acronyms:

PFD = Pay For Deletion (creditor agrees to remove account from credit report(s) in exchange for payment of debt.

CA = Collection Agency

JDB = Junk Debt Buyer (collections agencies who buy "bundles" of consumer debt)

A settlement notation on a credit report is not worse than a BK entry. The notation stays on the consumer's credit report for the legal amount of time allowed per the Fair Credit Reporting Act, which is usually 7 1/2 years for a "Charged Off" account. This timeframe is calculate from the "Date of First Major Deliquency" which is the date that the account first became deliquent, and was never brought current.

 

There is nothing as bad as BK, except one or more TLs that continue to report large unpaid balances. The only credit they won't stop cold is credit you don't want--predator credit.

Paying a CO may not help immediately, but it mellows with age, and can be knocked off in a year or two because the creditor will at some point archive or destroy the record.

BK is for preserving assets or escaping an entirely untenable situation. Those who think strategically can often avoid it. It is a nuclear option that is often mis-sold as the solution to a couple of coyotes.

 

P.S. - If there are no other CAs or JDBs potentially lurking in the wings or you just can't get PFD, you are free to negotiate the notation that will appear along with the TL. It could say "paid in full" when you didn't. It could say "settled for less" even though you paid in full (you might want this option if there are other JDBs or CAs). An agreeable creditor can put down anything you agree on with them, even though their contract with the CRA says different (they're supposed to report their experience accurately, and to the CRAs that also means no PFD). If the CRA audits them and finds it (which seldom happens), the CRA could make them change it later. Or not.

YMMV