How to handle paying old charge-offs?

[jmoore87]

Hey everyone,

I'm back with another question about some old accounts I'm working with. Thanks to all the help from the board, I'm currently waiting on a couple of PFD responses with Asset Acceptance that are outside NH SOL. I've got a question for another account now. It looks like the remaining baddies are now entirely on my wife's credit report. She's got a Capital One account that was opened in 2005 and a First Financial that was opened in 2004. These are her 2 oldest accounts, so as you can see, we are younger and don't have an entirely long credit history. The Capital One account has a balance between $2166 and $2498 (hard to tell by looking at the CR). The First Financial one is between $845 and $1367 (again, not sure which is the actual balance). These accounts first became delinquent in 10 and 11/2009. So, I already know they are outside the SOL.

Now, I've got the cash to pay both of these things, and could do it in a heartbeat. However, what's the best way of going about this to not do more damage than good? Both accounts are reporting the high balance each month and are about half-way through their reporting timeline. If I do a PFD successfully, it will remove 2 of her oldest accounts. The only active accounts she has now is an authorized user on my Capital One (of only about 3 months) and a Sallie Mae student loan that isn't reporting yet. The way I see it, we have 3 options for these accounts: 1. PFD to eliminate the high utilization, lates and charge-off status while sacrificing account age. 2. Pay in settlement to save some cash, which should eliminate the high utilization, but will keep the charge-off status and lates. 3. Pay in full and try to Good Will as many lates as possible and possibly remove charge off status.

I'm wondering which of the 3 options would be best, especially considering we will be applying for a mortgage together next Spring. My score is happily just over the 640 mid-score limit, while she's at about 580. We have a lender that is willing to go 620 on FHA. If there is a 4th or 5th option I haven't thought of, I'd love to know about it.

If more detailed data on the tradelines are needed, I can post those in here. Thanks in advance everyone, you've already helped me gain about 45 points. Hoping I can do the same for my wife's score.

Also, how ridiculous is it that I want to try to do the right thing by paying these old debts off, but in most situations we'll be punished? If I was willing to wait the remaining 3 years, I could be a total sleazeball and wait for them to age off, and I would actually be rewarded by having the score increase!

[llecs]

I would send both a PFD. IME, and based on what I have read on here, it'll highly be unlikely you'd see any PFD success with CapOne. I'd try once or twice, but if they say no each time or don't respond, I'd probably pay it off and GW later. I'm not familiar with the other.

Paying or settling would result in a $0 balance and there's a chance you'd see a score bump off that alone (provided your util is clean outside these two).

On settling, it's a personal choice. I preferred to offer 100% on everything I owed. Personal principle. Also assuming the creditor would even accept a PFD to begin with, your odds are higher of acceptance when offering 100% vs. 50%, for example. I never wanted to be in a situation where I offered 50% and they said "no" and I would end up thinking that had I offered more then maybe they would have said "yes". I also didn't want to be in a situation where I countered with 60%, 70%, 80%, and so on. But again, personal preference. If you do settle, any settled difference in the amount $600 or more can be taxable per IRS.

[RobertEG]

First, the premise is apparently that your PFD will result in deletion of the entire account.  In making your PFD offer, request only the deletion of the adverse items, not the account itself.  If accepted, the account will remain, and thus continue to be scored in avg age of accounts.  If all derogs are deleted, it will then appear to those viewing your CR as a positive account.

Absent obtaining a full PFD acceptance of deletion of the derogs, the next best thing is to obtain a settlement for less, along with their agreement not to report that additional paid for less comment to the CRA.  That will result in satisfaction of the debt, and while it wont improve your score, will avoid the negative comment of paid for less.

In any future manual review of your credit report, it is not beneficial to have the posted comment that, in the past, you did not fully pay the entire debt that you obligated.

That spells loss for a future creditor should you take the same tack with them.

[jmoore87]

Thanks guys! The previous PFDs I have done have been to ask CAs to delete their tradelines, and I completely forgot that I could do a PFD to ask the OC to delete derogatory comments. I think that will be the best way to go. llecs, I agree with you about paying 100% of the original balance, which I'm prepared to do. I definitely want these accounts to be shown in the best possible light when they are manually reviewed next year. I think my plan will be a combination of llecs suggestions and what RobertEG said.

1. Send 1 or 2 PFDs to First Financial and Capital One telling them that I'd like to pay the current outstanding balance if they'd be willing to remove derogatory comments as a gesture of goodwill.

2. If they aren't willing to work with me on that, then I'll go the settlement route, asking that they not mark it as paid for less than full. Not that I'm entitled to anything, but if they're going to be difficult with me, I'm going to push it back on them a little bit.

3. If all else fails, just pay the whole damned thing and then GW them each month until we apply for the mortgage.