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Const loan, charge offs and settlements


Const loan, charge offs and settlements

Sold my first home. Netted 100k. Need a huge chunk of that for downpayment on the next place (single income in a **bleep**ty market doesn't leave many options) so have about 20-30k to use for old debt. 
credit profile is crummy. Post divorce cleanup. 
All charge offs are 5+ years old. Outside of SOL. Current mortgage scores are 639-676. Current mortgage hasn't updated to closed with the sale yet. I have 4 years perfect credit from 2018-now. 
here's my questions: 

I have 6 or 7 charge offs I need to handle. They total about 17k. I can settle them down to around 10k or maybe less. 
if I settle.... how will that affect my scores? Some of these haven't been updated in years and if I settle it will throw an update on them... I'm worried my scores will drop even more with an update to each. 
These are COs with Barclays, amex, chase, etc. 

Message 1 of 3
Super Contributor

Re: Const loan, charge offs and settlements

When getting a mortgage for a primary residence you'll rarely require charge-offs to be paid in order to qualify, especially if using Fannie/Freddie, FHA or VA financing.  Fannie/Freddie automated underwriting systems are cracking down some on lower scores with past derogatory credit though, so if that is the type of financing you are trying to qualify for then I'd work on getting your scores up.


A lot of people report owing charge-offs count against your revolving utilization and that by zero'ing them out on credit has a positive impact on scores, even older charge-offs.  You might be able to negotiate in your settlement that they don't report a brand new charge remark and/or they delete older charge-off remarks, or the best outcome is if they agree to a pay-for-delete.  Here is one person who reported paying off a 5-year old charge-off and their score jumped 50 points, their creditor reported a new charge-off mark but deleted the old... you might want to ask in the that section of the FICO forums as different experts will see it vs. asking it here.  Some loan officers can even run a "What If?" simulator to estimate the impact paying off a charge-off and adding a MOP (Manner of Payment, which is what the codes are on a credit report that signify if a payment was made on time or how severely delinquent it was in a certain month).

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Message 2 of 3

Re: Const loan, charge offs and settlements

Tremendously helpful! Thank you!

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