topic Re: What to do? in General Credit Topics

What to do?

Anonymous — Fri, 13 Dec 2019 17:04:32 GMT

Currently looking to buy a home within 6 months. My credit karma scores are substantially better than myfico scores. It wasn’t until the lender said I have an account that’s 5 years old that’s hurting my scores the most. His simulator said if that account was removed my score would go up over 60 points. It didn’t make sense because I have a newer collection account. It wasn’t until looking at myfico and this account is actually a charge off so it’s making my utilization 70% which shows in red as bad. Credit karma doesn’t include this account for my utilization which sits around 8%. My question is It worth to settle the account that’s this old to fix my utilization. I was told if she settle for less it won’t have a balance anymore then I can try to remove it from my reports as they no longer will have a financial investment in verifying everything. Thoughts?

Re: What to do?

Anonymous — Fri, 13 Dec 2019 19:02:27 GMT

How much would it cost to settle the account? You can call and try to talk the amount owed down and make payments instead of paying in full if it’s a large amount. Either way, I do think you should pay it off, it’d greatly increase your chances of getting approved and with better rates.

Re: What to do?

Anonymous — Fri, 13 Dec 2019 20:54:58 GMT

So the account was 2400 and can settle for 750. Again the only reason why I’d wanna pay it is because it has an effect on my utilization. It’s over 100% of my original credit limit.

Re: What to do?

RSX — Fri, 13 Dec 2019 23:01:03 GMT

I would say settle it for the $750. Util has a big impact on scoring

also CK scores will usually be higher than the real ones. It won't matter because most institutions use the real ones.

Re: What to do?

SouthJamaica — Fri, 13 Dec 2019 23:14:35 GMT

@Anonymous wrote:
Currently looking to buy a home within 6 months. My credit karma scores are substantially better than myfico scores. It wasn’t until the lender said I have an account that’s 5 years old that’s hurting my scores the most. His simulator said if that account was removed my score would go up over 60 points. It didn’t make sense because I have a newer collection account. It wasn’t until looking at myfico and this account is actually a charge off so it’s making my utilization 70% which shows in red as bad. Credit karma doesn’t include this account for my utilization which sits around 8%. My question is It worth to settle the account that’s this old to fix my utilization. I was told if she settle for less it won’t have a balance anymore then I can try to remove it from my reports as they no longer will have a financial investment in verifying everything. Thoughts?

1. Your Credit Karma scores are meaningless. The only scores that count are your FICO scores. And the only FICO scores that count for your mortgage are the mortgage scores.

2. You should pay the account in full, not settle it. If you settle it that could create a negative which will last a long long time. After you pay it off, you probably won't realize some great benefit right away, but it will increase your likelihood of getting it removed with verification letters.

3. You are getting a lot of dumb advice from whomever you are speaking with.

Re: What to do?

Anonymous — Sat, 14 Dec 2019 02:09:34 GMT

What makes you think it’s better to pay it off in full opposed to settling for less? Either one results in showing a no balance as they both resolve the account. I understand CK scores are worthless but mention them because vantage scoring does not use charge off balances towards your utilization, and if everything else is the same as far as what’s on both reports than I’m assuming what’s causing the damage is the high utilization. Also in regards to the “dumb advice” I was told this from three different places. The banks loan officer who uses a simulator that he says is very accurate and both Lexington law and sky blue credit repair. Paying it off in full or settling for less, do not remove it from my reports so I don’t see any added value of paying all that extra money. Only benefit would not getting a 1099c. I was just trying to see if anyone had a similar experience and their results.

Re: What to do?

thornback — Sat, 14 Dec 2019 02:36:43 GMT

@Anonymous wrote:
What makes you think it’s better to pay it off in full opposed to settling for less? Either one results in showing a no balance as they both resolve the account. I understand CK scores are worthless but mention them because vantage scoring does not use charge off balances towards your utilization, and if everything else is the same as far as what’s on both reports than I’m assuming what’s causing the damage is the high utilization. Also in regards to the “dumb advice” I was told this from three different places. The banks loan officer who uses a simulator that he says is very accurate and both Lexington law and sky blue credit repair. Paying it off in full or settling for less, do not remove it from my reports so I don’t see any added value of paying all that extra money. Only benefit would not getting a 1099c. I was just trying to see if anyone had a similar experience and their results.

Paid in Full is always better than Settled for Less.

It doesn't matter scorewise -- but can matter in other ways. Upon the manual review of your reports by a lender, seeing that you allowed an account to become delinquent to the point of charged-off is bad, but seeing that you, at least, paid the debt that *you* incurred back in full gives them some reason to consider looking past it when making their lending decision. Settling still amounts to you not fully honoring your original agreement to pay back what you owe. Also, in the event that you want to attempt to have the entire derogatory tradeline removed sometime later, you stand a much better chance at a lender agreeing to a Goodwill deletion if you made them whole again. You also stand a better chance of starting a new relationship with lenders you burned in the past if you pay your debt back in full.

And then there's the obvious view point: it's not "paying all that extra money", it's paying back all the money you owe (granted, some folks simply cannot afford to pay it all back, so settling is the only option).

Re: What to do?

Brian_Earl_Spilner — Sat, 14 Dec 2019 02:44:48 GMT

@thornback wrote:
@Anonymous wrote:
What makes you think it’s better to pay it off in full opposed to settling for less? Either one results in showing a no balance as they both resolve the account. I understand CK scores are worthless but mention them because vantage scoring does not use charge off balances towards your utilization, and if everything else is the same as far as what’s on both reports than I’m assuming what’s causing the damage is the high utilization. Also in regards to the “dumb advice” I was told this from three different places. The banks loan officer who uses a simulator that he says is very accurate and both Lexington law and sky blue credit repair. Paying it off in full or settling for less, do not remove it from my reports so I don’t see any added value of paying all that extra money. Only benefit would not getting a 1099c. I was just trying to see if anyone had a similar experience and their results.

Paid in Full is always better than Settled for Less.

It doesn't matter scorewise -- but can matter in other ways. Upon the manual review of your reports by a lender, seeing that you allowed an account to become delinquent to the point of charged-off is bad, but seeing that you, at least, paid the debt that *you* incurred back in full gives them some reason to consider looking past it when making their lending decision. Settling still amounts to you not fully honoring your original agreement to pay back what you owe. Also, in the event that you want to attempt to have the entire derogatory tradeline removed sometime later, you stand a much better chance at a lender agreeing to a Goodwill deletion if you made them whole again. You also stand a better chance of starting a new relationship with lenders you burned in the past if you pay your debt back in full.

And then there's the obvious view point: it's not "paying all that extra money", it's paying back all the money you owe (granted, some folks simply cannot afford to pay it all back, so settling is the only option).

^^^ this right here. The comments matter for things like a mortgage and if they're not gonna remove it, it will say settled for less. Haven't bought a house in a while, but back in the day, not paying in full could cost you quite a few mortgage options.

Re: What to do?

thornback — Sat, 14 Dec 2019 02:48:51 GMT

@Anonymous wrote:
Currently looking to buy a home within 6 months. My credit karma scores are substantially better than myfico scores. It wasn’t until the lender said I have an account that’s 5 years old that’s hurting my scores the most. His simulator said if that account was removed my score would go up over 60 points. It didn’t make sense because I have a newer collection account. It wasn’t until looking at myfico and this account is actually a charge off so it’s making my utilization 70% which shows in red as bad. Credit karma doesn’t include this account for my utilization which sits around 8%. My question is It worth to settle the account that’s this old to fix my utilization. I was told if she settle for less it won’t have a balance anymore then I can try to remove it from my reports as they no longer will have a financial investment in verifying everything. Thoughts?

Yes, the outstanding balances of the charge-offs are both factoring into both your aggragate and individual utilization and hurting your scores. You are also risking the possibility of a lender deciding to update the accounts with a new charge-off notation at any point between now and the time they drop off your reports. This update will further ding your scores as it will make the derogatory event look "new again".

If you pay the balances -- either in full or settled, the lenders will update the tradelines to reflect 'Paid (or Settled for Less) / Closed' with a $0 Balance. The removal of the outstanding balances will lower your utilization and your scores should increase (by how much depends on how much your utilization percentage is reduced, which is determined by the ratio of your total debt:total amount of available credit). If, for example, you go from 70% util down to below 28.9% util, you stand to gain a significant chunk of points -- I'd guess at least 30, likely more but it depends on your overall profile. Once the account is paid and officially closed, there will be no possibility of further updates by the lender, which will allow the derogatory to age and hurt a bit less over time.

Just a side note: Credit Karma not only ignores charge-off balances, it also differs greatly from FICO in the way it responds to various aspects of, and changes to, your credit. It may be higher than FICO right now, but that can change over time. CK is best for reviewing your reports for free and being alerted to certain things -- like new accounts and inquiries.

Re: What to do?

Anonymous — Sat, 14 Dec 2019 03:38:30 GMT

Thank you very much. That makes a lot of sense. My utilization is currently at 7% not factoring that one account. I’m nervous if I settle it and while my utilization will benefit a great amount, I don’t like the sound of it looking “new like you said.

Re: What to do?

thornback — Sat, 14 Dec 2019 03:53:17 GMT

@Anonymous wrote:
Thank you very much. That makes a lot of sense. My utilization is currently at 7% not factoring that one account. I’m nervous if I settle it and while my utilization will benefit a great amount, I don’t like the sound of it looking “new like you said.

Whether to pay in full or settle is a decision only you can make. I mean, saving money is always a big plus -- but we wanted you to be aware of what the downfalls to settling could be. Either way, paying it is your best bet for both securing your mortgage and the improving your credit -- so think about it a bit, consider your finances, and move forward.

Good luck!!

Re: What to do?

SouthJamaica — Sat, 14 Dec 2019 11:31:37 GMT

@Anonymous wrote:
What makes you think it’s better to pay it off in full opposed to settling for less?

Because when you settle for less than the full amount owed, it usually results in a long term negative on your credit reports. There are various terms for it, such as 'chargeoff', 'settlement' etc. But whatever it is, it is a negative which drops your scores for 7 years.

Either one results in showing a no balance as they both resolve the account. I understand CK scores are worthless but mention them because vantage scoring does not use charge off balances towards your utilization, and if everything else is the same as far as what’s on both reports than I’m assuming what’s causing the damage is the high utilization.

Negatives in your report, such as late payments, are huge in impact, so don't make assumptions about something else causing the damage.

Also in regards to the “dumb advice” I was told this from three different places. The banks loan officer who uses a simulator that he says is very accurate and both Lexington law and sky blue credit repair.

Nevertheless, advising you to 'settle' a debt to improve your credit scores is dumb advice. Sorry if I've offended.

Paying it off in full or settling for less, do not remove it from my reports

Paying it off in full gives you better chances of removing it from your reports down the road

so I don’t see any added value of paying all that extra money. Only benefit would not getting a 1099c. I was just trying to see if anyone had a similar experience and their results.

Re: What to do?

FireMedic1 — Sat, 14 Dec 2019 12:42:53 GMT

+1 @SouthJamaica Also add. PIF looks better than settled for less to future creditors that you took responsibilty and paid your debts in full. Good luck either way and Happy Holidays.