Account Settled in Full & Scoring - Good or Bad?

[Anonymous]

How does the FICO scoring system score accounts that are "settled in full" as opposed to "paid in full"?

[fused]

FICO scoring wise it doesn't make a difference. However, on manual review a lender might have some questions.

Edited! Please disregard the statement I made above. As it turns out, a settled in full description on an account does cause the account to be treated and scored as a derogatory trade line. Scoring wise, having an account reporting as such will have the same results as a CO, repo or foreclosure. I apologize for the confusion.

Message Edited by fused on 06-13-2008 11:02 AM

[RobertEG]

I am not quite sure of your distinction as it relates to your specific accounts.

"Settled in full" implies that the account was previously derog, or maybe even in collection, and was finally settled by payment of the derog balance  Paying on any such account does not remove the account from your CR, or delete/remove the derog that caused the underlying neg reporting. 

"Paid in full," again, is only the current status.  The account also remains in your CR.

Once an account is closed, you instantly lose its prior CL in your %util calculation, but if it is not closed in good standing, meaning you still have an unpaid balancel that unpaid balance still counts agaist your % util until it is paid.  Once paid, the balance drops from your % util, which is a benefit.  It them beomes an account in good standing.

Howeve, it is any derog or collection against the account, open or closed, that scores primarily in FICO.

Paying or settling an account in full can bring it into a good standing status, but that, from a FICO perspective, only begins the clock that will ultimately lead to its eventual removal from your CR after it has been an account in good standing for ten years, and thus delete it from your avg age of account history.  That is not a FICO benefit.

FICO only looks at whether an account is open or closed, and not at who closed it or why, for purposes of including its age in your scoring.

Message Edited by RobertEG on 05-23-2008 10:52 PM

Message Edited by RobertEG on 05-23-2008 10:59 PM

[Anonymous]

Hello Robert,

Thanks for your response. A little more information on the account I am referring to. It's a Capital One Auto Finance Loan. The vehicle was totaled in January 2008 and the value of the car was paid for by my insurance company. I have GAP insurance but my claim was denied as there was supposedly a negative gap on the account. After the inrance paid there was a $6100 principak balance left on the account and about a $1500 interest & late fee balance.

SO while waiting to hear back from GAP, the account was accruing interest and late fees as I did not have the money to pay for 2 car notes. Since my last payment in January, I am expecting to have some lates from then to now. They have not updated my accounts since February 2008. 

Before the total loss, the account was in perfect standing, no 30 day lates at all, it was not in collections, charged off, or anything to that effect. In May 2008 Capital One sent me a letter offering a 75% settelment and they would update my cerdit reports as "settled in full"

I am thinking about taking advantage of this offer, but wanted to know what kind of negative effect it would have on my already fragile credit scores.

[Anonymous]

Thanks for your response fused, may you please take a look at the other response to my post and give me some insight? I've responded to the other person's post with more infomation to the account I am referring to.

THanks for any assistantce...

[RobertEG]

Make them a counter-offer.  Simply paying wil not remove it from your CR.  So make them an offer that you will pay it providing that they agree previously, in writing, to delete the entirety of the account from your CR. Pay for deletion (PFD).  Done every day.  They win, you win.

Once deleted from your CR, it cannot have any FICO impact, period.

Go for a PFD first.

Message Edited by RobertEG on 06-07-2008 06:08 PM

[Anonymous]

PFD is definitely the only way to go. It's harder than you might think, though. Logic would indicate that a collection agency or other debtor would gladly expend half an hour or so of effort to remove a file from your credit report in exchange for hundreds or even thousands of dollars.

However, people are often not logical, and apparently some collection agencies get such perverse satisfaction out of knowing their precious little collection is dinging your score that they'd rather go on dinging the score and NOT get paid, than take the ding away and cash in.

When you're going to a PFD, my advice is to go as high up the chain of command as you can, and try and reach someone who's high enough to care more about the corporation's bottom line than being petty and childish.

[RobertEG]

Excellent advice, NewWorld!  Ameobas exist only for their grazing upon the host.   The host, however, normally sees the bigger picture.

[Junejer]

Mshamika, I am sorry that I came late to the party, and I hope that I am not too late. I have a question about your GAP insurance. Isn't GAP insurance meant to cover negative gaps in value? Why are they denying the claim? I bet they didn't deny accepting payments on the GAP insurance. Admittedly, I don't know a lot about GAP insurance other than they always offer, and I always refuse it.

[fused]

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Mshamika wrote:

Thanks for your response fused, may you please take a look at the other response to my post and give me some insight? I've responded to the other person's post with more infomation to the account I am referring to.

THanks for any assistantce...

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Scoring wise, I agree with TNWM, PFD is the way to go.