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Settle or Pay in Full

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Anonymous
Not applicable

Settle or Pay in Full

First things first thanks to all you guys for all the knowledge on this site...Its truly awesome. Ok, I finally got the score I needed for the mortgage but they said there are 5 old accounts from 2004-2007 that must be paid before I can get the loan (its not just score you guys you can't have collections with a balance). I contacted all of them and they are all offering a settlement but my middle score is 627 and 620 is the cut off. Is it true that paying old debits will lower my credit score and should I pay in full or settle. Thanks in advance!

Message 1 of 21
20 REPLIES 20
Heavanly1
Regular Contributor

Re: Settle or Pay in Full

Could be. While attempting to qualify for a mortgagte, I paid in full a 2-year old collection. When the TL was updated, my score plummeted about 40 points!. I had to then GW the CA and fortunately, they were extremely responsive and removed the TL within a few days.

 

I'd recommend attempting a PFD. However, CA are not obligated to respond so if you have to pay them off before you can close on your home, that may not be a feasible option.

Message 2 of 21
AndySoCal
Valued Contributor

Re: Settle or Pay in Full

Yes it is possible that the score will go down by paying off old accounts. What type of collection accounts are they?  Have tried contacting the original creditor on any of these accounts?

 

 

FICO Scores XPN v8 802 V2 831 (SDFCU) TUC 803 v8 EFX 807 (10/2023)
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Message 3 of 21
LIGHTNIN
Senior Contributor

Re: Settle or Pay in Full

Paying in full always looks good on a manual review,but I understand buying a house money is always tight.

 

Did your loan officer say anything? Are they letting you pay before they approve you??

 

When I took out a 2nd on my home years ago,they also told me the CO's and CA's had to be paid.

Duh thats what I was getting the loan for, plus alittle money for remodeling. Get this they wouldn't let me pay them, they wrote the checks for the full admounts and had DH and I sign them.Boy O Boy was I dumb.

 

You are very wise,Smiley Wink to ask questions before doing anything. Good Luck to YOU!!

FICO's May 2015 EQ764 ~~Live below your means and always keep an emergency fund -Love Everybody ~ Big Kenny ~ Big and Rich ~~~~~Credit Scoring 101 - Common Abbreviations - Freq Req Threads - Free Credit Reports - What Steps Do I Take?DV? PFD?
Message 4 of 21
RobertEG
Legendary Contributor

Re: Settle or Pay in Full

I doubt that the :LO will care about the terms of your settlement of unpaid debts with prior creditors, as long as the debt is satisfied.

They dont want to be second or third in line, should you later default.

Message 5 of 21
Anonymous
Not applicable

Re: Settle or Pay in Full

I was pre-approved but told I have to pay the collections before closing. I am scared I will get to closing and find out my score fell too low. I owe a total of 2000 but if I accept the settlements I will pay about 1000. This whole process is nuts, paying a debit and getting punished with a score drop seems crazy to me.

Message 6 of 21
Anonymous
Not applicable

Re: Settle or Pay in Full

 


@Anonymous wrote:

I was pre-approved but told I have to pay the collections before closing. I am scared I will get to closing and find out my score fell too low. I owe a total of 2000 but if I accept the settlements I will pay about 1000. This whole process is nuts, paying a debit and getting punished with a score drop seems crazy to me.


 

I agree. It sucks! As far as I'm concerned that is a glitch in the FICO formula that needs to be addressed. Why should paying a debt make your score drop?

 

If I were you, I'd talk to my LO and explain the issue to them. Some loan officers don't understand this quirk of FICO scoring. See if they can arrange for you to pay the collections at closing. You would pay the escrow company and they would disburse the payments to the CAs. That way the collections would be paid and the drop in your score wouldn't come until after you have the house.

Message 7 of 21
haulingthescoreup
Moderator Emerita

Re: Settle or Pay in Full

I'm always reading about how paying a collection drops the score. And if people are saying it happens, I'm not doubting them. But we've asked the FICO admin why this happens, and he says it shouldn't, unless they (as in the reporting party, not the consumer) are monkeying around with the date.

 

Again, I'm not disbelieving; I'm trying to understand what's going on, because it shouldn't happen.

 

Does anyone have before and after FICO score reports showing the score change after payment, and the details of what's on the account? (All the dates and statuses and so forth.)

 

If someone could copy/paste these, maybe this could be addressed.

 

 

eta: it would be especially helpful if this could be provided by someone who had absolutely NO other changes on reports between the unpaid and paid collection. This is tough, I know, because especially during credit rebuilding, balances are changing and so forth.

 

But a before and after example with the collection being paid as the only change --no balance changes, no new accounts, nothing getting older by a year, no new baddies, no removed baddies, etc etc --would be truly infomative. I know that many people do pull multiple FICO reports when they're seeing what has happened to their scores as a result of all their hard work.

* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 8 of 21
Anonymous
Not applicable

Re: Settle or Pay in Full

 


@haulingthescoreup wrote:

I'm always reading about how paying a collection drops the score. And if people are saying it happens, I'm not doubting them. But we've asked the FICO admin why this happens, and he says it shouldn't, unless they (as in the reporting party, not the consumer) are monkeying around with the date.

 

Again, I'm not disbelieving; I'm trying to understand what's going on, because it shouldn't happen.

 

Does anyone have before and after FICO score reports showing the score change after payment, and the details of what's on the account? (All the dates and statuses and so forth.)

 

If someone could copy/paste these, maybe this could be addressed.


It's my understanding that paying an old collection updates the DOLA so that it figures more heavily into your score. So the older collections which aren't really affecting your score appear to be more recent because of the recent activity and your score drops. The older the collection, the worse the effect.

 

*Edited for grammar and spelling.

Message 9 of 21
haulingthescoreup
Moderator Emerita

Re: Settle or Pay in Full

But DOLA is NOT supposed to be part of the score. DOFD or date of assignment is.

 

So if the DOLA is changing, and the score changes as a result, someone is doing something wrong.

 

That's why a c/p'd excerpt from a report would be so helpful. If this info is being entered incorrectly, resulting in a score punishment, it needs to be addressed by those in the know. Smiley Happy

* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 10 of 21
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