Credit Cards Center Credit cards from our partners
Reply
Established Member
Posts: 11
Registered: ‎10-19-2012
0

Impact of Settlement on FICO score

I am hoping someone can give me some advise on how to remedy a situation I have recently run into.  I recently settled an outstanding Promissory note for less than the total balance owed in an effort to get my credit report cleaned up in order to qualify for a new mortgage.  As a result, my score has dropped by approximately 45 points (from 685 to 640)due to the tradeline (an unsecured line) reporting a KD with the comment of "legally settled for less than full balance".  All payments made against the note are showing as current, however, the settlement has dropped my credit score.  They had sent me multiple offers to settle at a % of the outstanding balance and I have paid a substantial amount 8 years early on a 10 year 0% interest note thinking this would IMPROVE my score.

 

While the way it is being reported is technically accurate, it is impairing my ability to qualify for a mortgage.  The creditor was not particularly easy to deal with so I don't imagine they will be receptive to changing the way it is reported but I will try nonetheless.  Does anyone have any insight into how I should approach this or how this may impact my ability to qualify for a mortgage (we had a short sale 2.5 years ago but are able to put 20% down and have solid income).  I'm worried I have now shot myself in the foot inadvertently! 

Moderator Emeritus
Posts: 32,865
Registered: ‎08-04-2007
0

Re: Impact of Settlement on FICO score


aharmon_499 wrote:

I am hoping someone can give me some advise on how to remedy a situation I have recently run into.  I recently settled an outstanding Promissory note for less than the total balance owed in an effort to get my credit report cleaned up in order to qualify for a new mortgage.  As a result, my score has dropped by approximately 45 points (from 685 to 640)due to the tradeline (an unsecured line) reporting a KD with the comment of "legally settled for less than full balance".  All payments made against the note are showing as current, however, the settlement has dropped my credit score.  They had sent me multiple offers to settle at a % of the outstanding balance and I have paid a substantial amount 8 years early on a 10 year 0% interest note thinking this would IMPROVE my score.

 

While the way it is being reported is technically accurate, it is impairing my ability to qualify for a mortgage.  The creditor was not particularly easy to deal with so I don't imagine they will be receptive to changing the way it is reported but I will try nonetheless.  Does anyone have any insight into how I should approach this or how this may impact my ability to qualify for a mortgage (we had a short sale 2.5 years ago but are able to put 20% down and have solid income).  I'm worried I have now shot myself in the foot inadvertently! 


"KD" is a term you usually see in 3rd-party credit monitoring or report services, especially through many of the Experian-based products out there. OP, did you get your score from there too, or were both scores purchased from your lender? It's very important to know because 99%+ of these services offer scores, but they aren't FICO scores.

 

Unfortunately comments like "settled for less than full balance" are viewed as a negative by FICO. The reason that it is is because lenders often view it as a negative. They always want to know if there's a potential for the same action against them. Certainly YMMV per lender. Every lender has their own standards.

 

Reserve the question for mortgage impact to Mortgage Loans. I noticed you have a post there already.

 

As per approaching the comment, try a GW letter:

 

Example letters - PFDs, GWs, DVs, etc.

Established Member
Posts: 11
Registered: ‎10-19-2012
0

Re: Impact of Settlement on FICO score

Thanks for the information.  This is in fact based on an Experian report and scores are also based on Experian's score watch product.  I had assumed these should closely mirror my actual FICO score but am I wrong in that aspect?  How much do actual FICO scores typically vary from this product?  Any resource where I can get a more accurate number other than direct with the lender.   I am taking the GW route to see whether they will modify it but I'm definitely not optimistic.

Moderator Emeritus
Posts: 32,865
Registered: ‎08-04-2007
0

Re: Impact of Settlement on FICO score


aharmon_499 wrote:

Thanks for the information.  This is in fact based on an Experian report and scores are also based on Experian's score watch product.  I had assumed these should closely mirror my actual FICO score but am I wrong in that aspect?  How much do actual FICO scores typically vary from this product?  Any resource where I can get a more accurate number other than direct with the lender.   I am taking the GW route to see whether they will modify it but I'm definitely not optimistic.


Ignore their scores and advice. It might be within a few points one day and 100+ the next. There's no correlation to FICO.

 

You're limited on the places to get your FICO score.

You can only buy your EQ FICO from myFICO, your lender, or from Equifax.com (buyer beware: the scores they push are a FAKO, but your EQ FICO can be purchased through EQ). The score pulled from here will very likely match your lender's if compared the same day.

You can only buy your TU FICO from myFICO or your lender and the TU FICO may not match your lender's. Your lender will more than likely pull a newer FICO version which could be close or several points off.

Finally, you can only buy your EX FICO from your lender. As of a few years ago, Experian blocked consumer access to your own EX FICO.

Aside from the above, you can also get your FICO scores for free or at a reduced price. Banks and CUs will offer it as a benefit. M&T Bank, Unitus Community Credit Union, and Digital Credit Union each offer an EQ FICO. You can get your TU FICO from Wal-Mart or Merrick Bank if you have CCs with them. And you can get your EX FICO from PA State Employees Credit Union (PSECU) if you have a checking account with them. There are other CUs out there that will offer a FICO if you ask them as part of a benefit for being a member.

Forums posts are not provided or commissioned by FICO. Forums posts have not been reviewed, approved or otherwise endorsed by FICO. It is not FICO's responsibility to ensure all posts and/or questions are answered.

Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
† Credit cards for FICO Score ranges: The score ranges are guidelines based on internal myFICO analysis of actual applicant approvals, and having a FICO Score in a particular range does not guarantee you will be approved for credit cards recommended in that range. These ranges were not provided by any card issuer.

Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved.   | Terms of Use | Privacy Policy | Sitemap

IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.