I am trying to settle a debt of about $4800 for $2700. I am told my credit report will read "settled" not "paid in full". Is there a big advantage of having "paid in full" vs "settled"? does it increase my credit score? Should I make payments to get a "paid in full". Thank you in advance for your responses
The difference will have a huge effect on your credit score. "Settled" is inherently a negative mark and will continue to hurt your credit scores, while "Paid in Full" isn't considered a negative entry on your credit reports. If possible, you want to avoid a "settled" notation altogehter and either have the debt removed or updated to paid in full. Make sure this is part of your negotiation process with the CA.
Let's not kid ourselves here. If the creditor is willing to consider settlement, then the debt must be at least 90-days late and/or be charged off. If so, then the serious delinquency and/or charge-off has already damaged your credit rating, and paying it off--even in full--won't increase your credit score, or improve lenders' willingness to extend credit significantly. The only benefit to paying off the debt is that you don't have to worry about a possible lawsuit in the future. Other than that, there is really no benefit to paying anything, and time is the only thing that can heal your credit. So if you can settle for $2700, and you can afford to pay this amount, then go for it. I can guarantee you that the difference between a paid-in-full collection (or paid-in-full charge-off) and one that is settled is so small that you'd have to be out of your mind to waste $2100 just to get the "paid-in-full" notation. That being said, if the creditor is willing to settle for $2700, odds are they'd be willing to settle for less. Try to negotiate it down to 40% (i.e. you pay $1920) and make sure to get the agreement in writing that the debt is settled in full and will not be re-sold to any other collection agency ever again.
I didn't say to go for a "Paid-in-full" collection or "Paid-in-full" charge-off. Yes, those will be just as damaging to the OP's FICO scores as if they were unpaid. My point was it can't hurt to aim high for a complete removal or an agreement to update to "Paid in Full" in return for payment.
I spoke with the collection agency and they told me that it is against the law for them to mar as "paid in full" unless it is paid in full. If I settle their only option is to mark it as "settled". Is this correct?
That is correct, however, if the debt is already with a collection agency, the damage to your credit has already been done. Paying anything toward the debt--even paying it in full--will not improve your credit score and will not make prospective lenders more willing to extend you credit. Regardless of whether or not you pay the debt, your credit score will increase with the passage of time. For example, my credit scores bottomed out in the low 400's when my cellphone account, credit cards, and other debts charged off in October-November of 2009. Even though I have never paid a dime toward these debts, nor applied for any credit since then, my scores have risen to the mid-520's now. Therefore, since the only benefit of paying/settling a charge-off or collection is that you avoid the risk of a possible lawsuit, your objective should be to settle as cheaply as possible.
Of course that's what they will tell you. It's partially true. People have shared success stories here after taking the NDA approach when negotiating a settlement. Here's how it works in theory: 1.) You'll pay if they agree to sign an NDA 2.) They agree and you pay 3.) You dispute the account through the CRAs 4.) The CA doesn't reply to the CRAs' investigation because of the NDA 5.) the CRAs delete the account because they never hear back from the CA and can't verify the information is correct. The CA got paid and you got the collection off your credit report. Everyone is happy.
So who is responsible for creating the NDA? Is it me or the CA? Also, are lawyers usually involved with this process? Thanks.
It's something you would provide, and it certainly wouldn't hurt to consult with a lawyer if you have the opportunity.
Would the NDA result in the charge-off being deleted or just the collections activity? If it only got the collections activity deleted, how would it (if at all) affect the charge-off?
An agreement by one party, can't affect another party who isn't a party to the agreement. If the CA is ASSIGNED, the OC still has the debt, you could try making the NDA offer to the OC, and get the OC to recall the account from the CA to get the payment. Is the CA reporting on your account, as well as the OC, or only the OC?
