Good Credit Score, how will a debt settlement affect my score?

[Anonymous]

My husband and I both have really good credit between 760 and 780.  We are stuck upside down on our house, we have never been late on any credit account, so we offered our second mortgage a settlement payment of 10%, and they accepted.  I asked them how they report this on our credit, and they said it will report as "settled".  My question is, how will this affect our great credit?  We are currently approved to get e new mortgage so that we can move into a bigger place, and I am not sure if this is the right thing to do.  Please help!

[MarineVietVet]

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@Anonymous wrote:

My husband and I both have really good credit between 760 and 780.  We are stuck upside down on our house, we have never been late on any credit account, so we offered our second mortgage a settlement payment of 10%, and they accepted.  I asked them how they report this on our credit, and they said it will report as "settled".  My question is, how will this affect our great credit?  We are currently approved to get e new mortgage so that we can move into a bigger place, and I am not sure if this is the right thing to do.  Please help!

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Hi libertygo and welcome to the forums.

Unfortunately a notation of "settled" is scored the same as a charge off so I'm not sure how your mortgage lender will react to it.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

Thanks so much for your reply!!  My Lendor said as long as we are not delinquent they are OK with it.  But do you know if our credit score will drop??

[MarineVietVet]

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@Anonymous wrote:

Thanks so much for your reply!!  My Lendor said as long as we are not delinquent they are OK with it.  But do you know if our credit score will drop??

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A new derogatory being added? That can be a real score killer but I won't even try to guess what the actual damage might be. There are too many variables. Much depends on what else is reporting. All you can really do is wait and see. I know that's probably not what you want to hear though.

But the good news is the lender doesn't think it will hurt the application and that is a BIG plus! 

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

This is basically what our broker said

if it is reported current all the way, shows a zero balance then you would be eligible

 if it is reported delinquent on the last payment then it is a 3 year waiting period

and I asked the 2nd mortgage and they said we will be current all the way through, and they will be reporting it as "paid in full but at a lesser value".  Now I heard the credit bureaus see no delinquent and paid in full that the score isn't affected that much.... Is this true?

[MarineVietVet]

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@Anonymous wrote:

This is basically what our broker said

if it is reported current all the way, shows a zero balance then you would be eligible

 if it is reported delinquent on the last payment then it is a 3 year waiting period

and I asked the 2nd mortgage and they said we will be current all the way through, and they will be reporting it as "paid in full but at a lesser value".  Now I heard the credit bureaus see no delinquent and paid in full that the score isn't affected that much.... Is this true?

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I wasn't at all sure about that notation so I asked around and was told that you  should still expect it to hit the score like a charge off, regardless of whether any delinquencies are reported or not.

Here is an example of what a settled account can do to scores. In this case it's looking at how 2 people with respectives scores of 680 and 780 will lose a different amount of points: http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".