Impact of Settlement on FICO score

aharmon_499 · ‎02-07-2013

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!

llecs · ‎02-08-2013

@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.

aharmon_499 · ‎02-08-2013

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.

llecs · ‎02-08-2013

@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.