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Charge Off - PIF vs. Settled

New Member

Charge Off - PIF vs. Settled

I have a navy federal credit card that was charged off. It was opened 5/2013 and charged off 4/2015. I started paying 500 per month on it back in January. The balance was originally 6300 and is now 4800. My goal is pre approval for a conventional mortgage loan. They offered me a settlement amount of 2164.00 which will show as settled. I'm not sure how this will affect my credit score. Is it worth it to pay it in full for the full 4800? How will each affect my score? My current scores are FICO 8 650/648/656 and mortgage Fico 5,4,2 656/608/558. 

 

If someone could please offer some advice. 

 

Thanks!

Rebecca

5/9/18 Fico 8 670/657/665, Mortgage 5,4,2 663/652/643
4/16/18 Fico 8 650/647/652, Mortgage 5,4,2 656/608/558
12/18/17 Mortgage 5,4,2 593/579/508
Message 1 of 8
7 REPLIES
Frequent Contributor

Re: Charge Off - PIF vs. Settled

im curious about this as well 




Message 2 of 8
Frequent Contributor

Re: Charge Off - PIF vs. Settled

Whether you pay in full or settle, your scores will respond the same. Bringing the balance to zero will eliminate it from factoring into your overall utilization, which may result in a boost in score. Paying will also officially close the account and prevent any further negative updates by the original creditor.

The difference lies in the way the account is notated on your reports. The PAID notation will either reflect PAID IN FULL or SETTLED / SETTLED FOR LESS, depending on which you choose to do. This notation only affects how lenders view your payment history upon a manual review of your reports. Some may not care whether you paid in full or settled - so long as you paid; while others may prefer to see you paid your debt in full.

It's just a choice you'll have to make based on your current financial ability. Of course paying in full looks better on your reports, but if it's going to hurt financially then it may not be worth it.
Personal Aphorism:
"Forget What You Feel, Remember What You Deserve"


Starting Score:   09/06/2017: EX 641 ✦ EQ 634 ✦ TU 647
Current Score:  10/28/2018: EX 778 ✦ EQ 782 ✦ TU 768 (missing account)
Goal Score:   800's


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Message 3 of 8

Re: Charge Off - PIF vs. Settled

Agree with previous post. I settled for less than full balance on a charged off CC but when the balance reported zero, my 8 jumped ten points and my mortgage scores increased as well. I saw the biggest difference with Experian but the greater the decrease in utilization, the better the results when it hits 0.
Message 4 of 8
Regular Contributor

Re: Charge Off - PIF vs. Settled

One thing to remember as well.  Any amount that is written off in settling is considered to be income.  You will receive a 1099-C, and have to pay taxes on that amount.

 

You are still saving a lot of money settling vs paying in full, I just want to make sure you are aware and ready for it when you file next years taxes.

Message 5 of 8
Community Leader
Legendary Contributor

Re: Charge Off - PIF vs. Settled

Yes, it is only a manual review issue.

However, it may be a show-stopper to some creditors.

 

Settled for less provides the prospective creditor with information that the consumer has a history of not paying all the debt that they incur.

That means that the prior creditor took a loss in their transaction.

If the consumer repeats that pattern, then they will take a loss if they lend to you.

Creditors dont like to grant credit which they reasonably expect may lead to a loss.

It can be a serious negative comment that can kill an approval.

 

If you settle for less, I would recommend first making the creditor an offer to pay that is contingent upon their agreement not to make any reporting that informs that the debt was settled for less.  Absent any special comment code indicated the debt was settled for less, the consumer's credit report will then appear in any review the same as if the debt had been paid in full.

 

Message 6 of 8
Regular Contributor

Re: Charge Off - PIF vs. Settled

Another thing to consider, since it is NFCU, is that if you PIF, you will probably remain within their good graces regarding future loans and CC.  If you settle, they may consider that "Burning Them" and then your relationship with them will be ruined.

Message 7 of 8
New Member

Re: Charge Off - PIF vs. Settled

I went ahead and PIF to maintain a relationship with Navy Federal. I will see how it affects my scores. Thank you for all the advice!

5/9/18 Fico 8 670/657/665, Mortgage 5,4,2 663/652/643
4/16/18 Fico 8 650/647/652, Mortgage 5,4,2 656/608/558
12/18/17 Mortgage 5,4,2 593/579/508
Message 8 of 8