Have a situation that I keep reading conflicting answers so I hope someone could take a minute to help. Have a AMEX card that was for my business that was charged off last year for $3900. Got an offer to settle for $1200 with a third party company. They said the credit report will be updated to Settled in Full... I really wanted it off or at least PAID if possible but they will not do this. So I am trying to find out how much of a credit score hit the settled is vs. a paid in full. We are looking to buy a house soon and Im not sure of the best thing to do. I know paid is best .. but i sure could use the difference in $$ to pay down other things. Any advice? If the score between settled and paid is minimal... i would pay the lower amount but if its a huge difference it would benefit me to pay it in full. Thanks GW
You're reading a lot of conflicting answers because it's really difficult for anyone to estimate the exact number of points you may lose. That will depend upon several variables that make up your personal credit profile, and it could vary significantly from one person to the next. That said, any "settled" account is considered a negative mark on your credit report, while a normal "Paid" is not. But don't forget - a "Paid" collection account is still a negative mark too. There's a difference. In a recent article written by Liz Weston, the personal finance writer who blogs for MSN Money, she released some numbers from FICO regarding the amount of points one may lose for common credit mistakes. This was the first time FICO has ever released any information about specific point spreads to anyone. So, for a hypothetical person with a credit score of 680, they said debt settlement could lead to a drop of 45-60 points. Since you already have a collection on your report, I'm guessing your score may be lower than 680 in the first place. Also, this estimate was based on settling with the OC, and you're dealing with a CA. So, in theory, it should hurt less because the FICO score is supposed to give greater weight to what OC's report. Anyway, it's going to be difficult to get a home loan in this current lending market with any settled account on your credit report. A paid collection isn't really going to be any better. If you need the money, focus on negotiating the best deal and don't get too hung up on how it's going to affect your credit score. You can repair it over time by doing things right from this time forward. And perhaps the new home will just need to wait for awhile.
