Will settling a debt lower my score?

[maygirl]

Ok I am trying to get my score above a 620 to apply for a mortgage, but I have 4 collection accounts that need to be paid. They are with Citi Financial, Citi Bank, MCM and Kohls/Capitol One

So they are all offering me settlements, and I know they will have to be paid to get a mortgage. If I settle these debts will it re-age them and therefore make them look newer and hurt my score? OR since they are hurting my UTL will they help my score by getting the amount owed down to $0?

I have asked for PFD, but none of them will give it to me even with a PIF!!! I already got 3 accounts deleted with a PDF or goodwill letters.

Any Advice??? I am currently at a 556 midscore lender pull, my Experian is at 612. The 30 day projected score on my mortgage lender pull was a 578. So I know things are looking better, but I HAVE to pay off these collections!

Please let me know if you have any experience with these!!

[llecs]

They won't re-age. Re-aging, by definition, is when the OC or CA alters the DOFD of the debt causing it to report longer than legally allowed. No matter what you decide to do, nothing can re-age it.

Whenever you pay a debt, and the OC updates (they have to in order to report the new balance), it can cause a score impact in some situations. If the account hadn't updated in years, and you pay it, the date reported can change and that can impact your FICO negatively. YMMV on the CRA and FICO used. No Citifinancial I don't think updates every month. MCM is a CA and no worries there. And very likely CapOne and Citi (if a CC) is already updating monthly. I think any update would have a very minimal impact in that regard. YOu can also see a benefit as it reaches $0.

When it hits $0, your Citi (if a CC) and CapOne will forever be removed from FICO scoring per util. If both accounts are maxed out and the reported balance reports more than the reported CL, then you can see a nice gain just by paying them off. You might see a benefit with CitiFinancial if your score likes the added $0 balance. There's zero benefit to MCM hitting $0 per FICO.

In a nutshell, I wouldn't worry about the pos or neg impact. If it is a condition to buying a home, then don't worry. There's nothing you can do anyway but pay, or not pay and skip a mortgage.

Once your payment to them clears, then immediately start calling for GWs. Keep calling until they say yes.

[maygirl]

Thank You!!! That was exactly what I wanted to know!

[mtrsprt]

I settled $14,000.00 worth of debt with three of my 5 year old collection accounts.   My scores went up 50-70 points within 2 months.   None of them were deleted off my CR, but all were updated to zero balance and paid/settled.

[angeltimes3]

I'll be joining you on paying off debt like this too.  I am just glad to finally be able to pay it off and get it off our backs and hoping that once I can get the score going higher, on it's current trajectory then we can get a mortgage too.  Here's to getting it all settled!!!

03/23/12 TU 505  EXP 489

05/02/12 TU 548 EXP 505

goal TU 700  EXP 700

[MarineVietVet]

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@mtrsprt wrote:

I settled $14,000.00 worth of debt with three of my 5 year old collection accounts.   My scores went up 50-70 points within 2 months.   None of them were deleted off my CR, but all were updated to zero balance and paid/settled.

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It wasn't paying off the collections that raised your score. FICO doesn't look to see if a collection has a balance. The amount can be $0 or $10,000 and the score will be the same. Some other factor or factors helped your score.