Settlement vs. Paying the Total Amount Due

[Anonymous]

It is obvious the benefit with settling an account...you pay less. However, what impact does it have on your credit score? Do lenders frown on a settled account as opposed to a paid in full account?

[llecs]

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goldjaguar wrote:
It is obvious the benefit with settling an account...you pay less. However, what impact does it have on your credit score? Do lenders frown on a settled account as opposed to a paid in full account?

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Unfortunately a "settled" comment is about as bad as a "charge-off" comment if this is an OC account per your FICO score. "Settled" is a negative comment. YMMV based on the lender's preferences. The only time I ran into that was when DW opened a new BofA CC. They frowned on a TL that said "paid charge-off" vs. "settled". IMO, equally bad in the eyes of a lender. Ideally you'd want to work out a pay-for-delete arrangement before settling. If already done, you could send a GW letter to the creditor asking them to remove the "settled" comment and any other derog info like lates.

If the account is a CA, then a "settled" comment doesn't matter. Per FICO scoring, if you owe $0 or $10,000, the damage is the same. If this is the case, then send a GW letter asking them to delete.

[IOBA]

Please remember that when you settle an account, if the "forgiven" amount is $600 or more, the company will probably send a 1099C.  The amount "forgiven" will be considered "income".  The IRS charges 40-60% taxes on that amount REGARDLESS of the tax bracket you are normally with.

Then you have to make sure that the cc reports it accurately.  Chase has falsely reported settlements as charge offs, collections, seriously delinquents.  And that hurts your credit score a lot.

Can you go on a payment plan with them?  Pay it off in 5 years?