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Settling a Collection Account and Effect on Score

SusieQ954
Established Member

Settling a Collection Account and Effect on Score

I have an $8776 Collection balance with Vericred Solutions LLC that was a Santander charge-off (Auto Loan) from 2015.

The Collection agency account first showed up on my reports (only Transunion) in March of this year. It is scheduled to drop off in November of 2022. I have not had any communication with the CA since learning of this account. I expected I would eventually wait it out and have it drop off my report in 2 years.

 

They have reached out with a "Settlement offer". I am tempted to call them to find out what they are offering and if I might also be able to do a "Pay for Delete" in the process.

 

Here is my conundrum:

 

I have been pre-approved for an FHA mortgage for New Construction which isn't scheduled to close until late March/early April 2021 with a FICO mid-score of 662.

 

This collection will be one of the last derogatory items on the report ( I have several much smaller ones scheduled to drop off by the end of the year, and another due to in May 2021, that I may try to settle as well for the reasons that follow).

 

Under the FHA 5% rule on collections this $8776 collection is adding an imaginary $483 a month to my back-end DTI.

My average monthly income (80% commission based) year over year is going to show a monthly average drop from about $7500 a month in 2019 to $6000 a month in 2020 by the time the year is out and my W-2 is available when they re-underwrite the loan closer to closing.

I just want to be prepared for any eventualities and meet it head on.

 

A part of me says to let the collection slide, not pay it, and have that $483 added to my DTI but with a concurrent drop in income that could get those numbers closer to the 50% side of things. The other part of me says, see what they have to offer, and if it sounds reasonable, commit to an actual lower monthly payment (hoping for something in the $100 range), and ask for a delete at the end, thereby keeping my DTI in a more attractive number to the lender.

 

What would you do?

 

And lastly, if I contact the collection agency, will that affect the way the account reflects on the credit report (like they will update the date to August for most recent report instead of March 2020 and that would lower my score)? And I guess, If I do make a deal with them, could the fact that I am now paying something on that account drop my score and cause something even worse than having that imaginary $483 on my DTI (such as dropping my score below a rate threshhold or even qualification threshhold for the FHA mortgage).

 

Thanks for any advice!

 

 

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