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New Member
daveb111
Posts: 6
Registered: ‎10-20-2013
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effect of "settled in full" ?

Hi – I’m helping my stepdaughter with a credit card debt.  She had good credit until divorce and I am trying to help her keep her credit as undamaged and repairable as possible. The CC company has offered to settle for one half the amount and mark the account as “settled in full”.  It appears to me some people on this forum are indicating that this will have a similar impact as a charge off, and will be on her credit record for 7 years?  Is this true? 

Moderator
09Lexie
Posts: 25,298
Registered: ‎09-13-2012
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Re: effect of "settled in full" ?

Welcome to the forum.

Yes, settled will remain for up to 7-1/2 years. Ask for a PFD and make sure its in writing.
New Member
daveb111
Posts: 6
Registered: ‎10-20-2013
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Re: effect of "settled in full" ?

I understand PFD stands for 'pay for delete' But I'm not clear how that works.   i just ask them to delete the account in return for our settlement payment? is that common or likely?

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09Lexie
Posts: 25,298
Registered: ‎09-13-2012
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Mega Contributor
RobertEG
Posts: 17,456
Registered: ‎03-19-2007
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Re: effect of "settled in full" ?

What they are offering is much better than reporting settled for less, but does not remove any negative reporting made by the OC.  The ultimate is to get both a settlement for less, and deltion of any derogs.  However, that is often difficult to obtain.  Agreement not to report settled for less is the next best thing.

 

When a creditor accepts any amount as satisfaction of the debt, they must update the balance on the account to $0.  So others will see that it has been paid.

However, if they excused a portion of the debt by accepting less than its full amount, they can additionally report that fact by way of entry of a special comment of "paid/settled for less."  Some have indicated that such a special comment has an adverse affect on their score.  Regardless of the scoring implications, such a special comment advises others that, in the past, the consumer did not fully pay the entire debt they obligated, so it is never a favorable comment.

It appears that, aside from the disadvantage of $$ out of pocket, it is clearly better not to have a paid for less reported.

 

To the extent that such a special comment is considered an adverse item of information, the CRA would be required to exclude its reporting no later than 7 years from the date of occurence of the settlement.

 

As an aside, one should also consider the amount of the excused debt.  If the difference between the full debt and the amount they accept as settlement is $600 or more, they are required to notify both the consumer and the IRS by sending a form 1099c.  The IRS considers excused debt of $600 or more to be psuedo "income" to the consumer, and wants its cut.  Thus, you may not actually be saving the full amount of the settlement.

 

 

New Member
daveb111
Posts: 6
Registered: ‎10-20-2013
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Re: effect of "settled in full" ?

[ Edited ]

 Thanks guys!  Great information.

 

Let me be a bit more specific. I've been reading alot of posts and i have a couple questions.

 

The debt is still with the credit card company.  We have been paying a minimum each month to keep it from being charged off as we are trying to keep her credit as undamaged as possible, so she will hopefully be able to get a mortgage and the kids back into a house.  The CC company has offered to settle for one half the $10,000 owed and mark the account as “settled in full”. 

 

First question is while I understand this will be on her CR for 7+years -  How negatively does it impact the score ? Enough to preclude getting a mortgage in a couple of years?

 

I have been reading many posts on this forum.  Including the following one by someone who sounds very knowledgeable :

 

"Re: Paid in full vs. settled in full

Options

 

‎05-02-2011 04:37 PM

When you pay an account, either in full or under a settlement agreement for less than the full amount, if the payment is accepted by the party as legal fulfillment of the debt, then there is only one current status code (field code 17 of your credit file) for their reporting.  That status code is "paid."  There is no current status code for reporting "paid for less than the full amount."

That information is separately reported under field code 19, "Special Comments."  It would then clarify that the "paid" status was achieved through a payment for less than the full amount of the debt owed.  A current status of "paid" does not mean it was paid in full.

Since FICO does not score payment or nonpayment of a debt, but only events that occurred along the way, these are not important to FICO scoring. It makes no FICO scoring difference if it was a PIF or a settlement".

 

The difference in importance comes about when a prospective creditor does a manual review of a consumer's credit report.  The Special Comment "paid for less than the full amount" is something they are apt to pay close attention to.  It tells them that you have, in the past, not fully met the total debt you accrued".

 (end of post)

 

From this, it sounds like that if the account is settled in full, or paid, the creditor has no option but to mark it as paid and then put that it was 'settled in full' in the special comments. Is this true? 

 

Many have noted the importance of requesting that no special comments be added, but if the above is true it would require the lender to mark it as paid and not put in a special note that it was settled in full, which I imagine some would be reluctant to do, but I should ask never the less, correct?

 

Is there any thing else, or something better we should request?  I read the info on PFD but sounds like its for accounts in collection and not that likely in this case.

 

Thanks in advance; great forum!

  

Established Member
KeepingScores
Posts: 17
Registered: ‎12-17-2008
0

Re: effect of "settled in full" ?


daveb111 wrote:

 Thanks guys!  Great information.

 

Let me be a bit more specific. I've been reading alot of posts and i have a couple questions.

 

The debt is still with the credit card company.  We have been paying a minimum each month to keep it from being charged off as we are trying to keep her credit as undamaged as possible, so she will hopefully be able to get a mortgage and the kids back into a house.  The CC company has offered to settle for one half the $10,000 owed and mark the account as “settled in full”. 

 

First question is while I understand this will be on her CR for 7+years -  How negatively does it impact the score ? Enough to preclude getting a mortgage in a couple of years?

 

I have been reading many posts on this forum.  Including the following one by someone who sounds very knowledgeable :

 

"Re: Paid in full vs. settled in full

Options

 

‎05-02-2011 04:37 PM

When you pay an account, either in full or under a settlement agreement for less than the full amount, if the payment is accepted by the party as legal fulfillment of the debt, then there is only one current status code (field code 17 of your credit file) for their reporting.  That status code is "paid."  There is no current status code for reporting "paid for less than the full amount."

That information is separately reported under field code 19, "Special Comments."  It would then clarify that the "paid" status was achieved through a payment for less than the full amount of the debt owed.  A current status of "paid" does not mean it was paid in full.

Since FICO does not score payment or nonpayment of a debt, but only events that occurred along the way, these are not important to FICO scoring. It makes no FICO scoring difference if it was a PIF or a settlement".

 

The difference in importance comes about when a prospective creditor does a manual review of a consumer's credit report.  The Special Comment "paid for less than the full amount" is something they are apt to pay close attention to.  It tells them that you have, in the past, not fully met the total debt you accrued".

 (end of post)

 

From this, it sounds like that if the account is settled in full, or paid, the creditor has no option but to mark it as paid and then put that it was 'settled in full' in the special comments. Is this true? 

 

Many have noted the importance of requesting that no special comments be added, but if the above is true it would require the lender to mark it as paid and not put in a special note that it was settled in full, which I imagine some would be reluctant to do, but I should ask never the less, correct?

 

Is there any thing else, or something better we should request?  I read the info on PFD but sounds like its for accounts in collection and not that likely in this case.

 

Thanks in advance; great forum!

  


09Lexie gave a link above to a information-filled post that I just started following.  IMHO, by following that link, I believe that you will find answers to many of your questions and more.  Just my suggestion.

Senior Contributor
Walt_K
Posts: 3,065
Registered: ‎11-02-2009
0

Re: effect of "settled in full" ?

[ Edited ]

daveb111 wrote:

 Thanks guys!  Great information.

 

Let me be a bit more specific. I've been reading alot of posts and i have a couple questions.

 

The debt is still with the credit card company.  We have been paying a minimum each month to keep it from being charged off as we are trying to keep her credit as undamaged as possible, so she will hopefully be able to get a mortgage and the kids back into a house.  The CC company has offered to settle for one half the $10,000 owed and mark the account as “settled in full”. 

 

First question is while I understand this will be on her CR for 7+years -  How negatively does it impact the score ? Enough to preclude getting a mortgage in a couple of years?

 

I have been reading many posts on this forum.  Including the following one by someone who sounds very knowledgeable :

 

"Re: Paid in full vs. settled in full

Options

 

‎05-02-2011 04:37 PM

When you pay an account, either in full or under a settlement agreement for less than the full amount, if the payment is accepted by the party as legal fulfillment of the debt, then there is only one current status code (field code 17 of your credit file) for their reporting.  That status code is "paid."  There is no current status code for reporting "paid for less than the full amount."

That information is separately reported under field code 19, "Special Comments."  It would then clarify that the "paid" status was achieved through a payment for less than the full amount of the debt owed.  A current status of "paid" does not mean it was paid in full.

Since FICO does not score payment or nonpayment of a debt, but only events that occurred along the way, these are not important to FICO scoring. It makes no FICO scoring difference if it was a PIF or a settlement".

 

The difference in importance comes about when a prospective creditor does a manual review of a consumer's credit report.  The Special Comment "paid for less than the full amount" is something they are apt to pay close attention to.  It tells them that you have, in the past, not fully met the total debt you accrued".

 (end of post)

 

From this, it sounds like that if the account is settled in full, or paid, the creditor has no option but to mark it as paid and then put that it was 'settled in full' in the special comments. Is this true? 

 

Many have noted the importance of requesting that no special comments be added, but if the above is true it would require the lender to mark it as paid and not put in a special note that it was settled in full, which I imagine some would be reluctant to do, but I should ask never the less, correct?

 

Is there any thing else, or something better we should request?  I read the info on PFD but sounds like its for accounts in collection and not that likely in this case.

 

Thanks in advance; great forum!

  


1.  Special comments.  You are correct that special comments are not scored.  They may be looked at unfavorably on a manual review.  So, if your daughter applies for a mortage as soon as possible, i.e., as soon as her scores get to above a minimum threshhold, and she has a borderline file, the special comments may be a factor in the decision that could lead to a denial.  If her scores are not borderline when she applies, I doubt it would be an issue at all.  In any event, it will not affect her FICO score. [Thanks to llecs for the correction]

 

2.  You can negotiate for them to mark the account paid and not to add any remarks.  I should think that would not bee too difficult for you to get out of them, but you never know until you try.  

 

3.  PFD is not reserved for accounts in collection.  A PFD is simply a contract whereby you negotiate for deletion in exchange for payment.  

 

PFD would be better than negotiating for no special comments assuming that this account has lots of negative info, e.g., multiple late payments.  If you actually got this account in control before the lates got that bad, i.e., only a couple 30 day lates, then you probably don't want to have it deleted.  In a couple years time, those 30 day lates will have little to no effect and your daughter could benefit from this tradeline.  Assuming there are multiple lates that are in the 90+ range, it would be best to just have the account deleted and you might want to pursue PFD.  

 

However, because you are currently paying on the account, they do not have a lot of incentive to agree to a PFD, especially for less than the full amount.  PFD works best when the debt is outside the statute of limitations and is essentially uncollectible, or when the person is willing to pay the entire amount.  Not saying they won't accept less than the full amount, but they can still sue for the full amount so you are at a disadvantage from a negotiating perspective.  

 

I might try to ask them for PFD and then fall back on having them report the account paid without any special remarks. 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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llecs
Posts: 32,881
Registered: ‎08-04-2007
0

Re: effect of "settled in full" ?


Walt_K wrote:
1.  Special comments.  You are correct that special comments are not scored.  They may be looked at unfavorably on a manual review.  So, if your daughter applies for a mortage as soon as possible, i.e., as soon as her scores get to above a minimum threshhold, and she has a borderline file, the special comments may be a factor in the decision that could lead to a denial.  If her scores are not borderline when she applies, I doubt it would be an issue at all.  In any event, it will not affect her FICO score.

Sepcial comments are scored. Comments like "disputed", "Included in bankruptcy", "settled for less than full", "charge-off/collection", and others can impact your FICO in some way or another. 

 

About a year or two ago I worked up a list of all of the comments in the Comments section of a TL that can impact your FICO. These mostly came from former FICO employees, but if I can find it, I'll post in UFS later today. 


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