Unique situation here i have never been late on my small mortgage but lender asked me to settle

[Anonymous]

Hi Everyone, I have a unique situation here. I have never been late in any of my bills. All of my credit scores are in the mid to high 700's. I have a second mortgage where the lender contacted me to settle for 66 cents on the dollar. I think they are trying to raise cash. They will not do "pay and delete" or say "paid in full". They said if I choose to settle per their request, the discount settlement agreement said it will say "settled" and it will be reported to the credit reporting agencies as "settled." how will this affect my credit score if I have never been late?

[fused]

Welcome to the forums, abbyandsesame!

An account reporting as "settled" can be as damaging as a CO (charge-off). Your FICO scores would likely drop quite a bit. Sorry!

[TravellingNomad]

(nevermind....a mod already answered )

welcome to the myFICO forums!

[GregB]

Huge damage to your score.

I'm trying to understand WHY they would contact you about getting cash and then want to damage your credit if you accept their offer.

[Anonymous]

I don't understand either!! I thought it was weird that they would contact me to settle and then not provide a better offer in terms of credit damage. I have never been late.

[haulingthescoreup]

Heck, no.

Wow, they deserve to be in financial trouble if they don't have any more sense than that.

Stick to your guns!

[Anonymous]

WHAT!? That is the craziest thing I have ever read here. I expect they will be selling your loan soon. Some of these lenders DESERVE to go out of business. I cannot believe they would call you asking to help them out and in return they would damage your score. Idiots.

[RobertEG]

You dont have a delinquent debt. The current status of the account is reporting, and has apparently always reported, a status of payed as agreed.

When you pay an account, regardless of its prior status as delinquenct or in good-standing, the account must report only one current status.  That status is one simple four-letter word.  PAID.

The recordation of a settlement for less than the full amount of a debt is entered by way of a separate "Special Comments" code in your CR, and is ONLY applicable for entry into your CR if it refers to settlement of a delinquent debt. 

Additionally, when you "settle" a debt, the creditor is required to update your credit file to report a $0 balance.  That represents no more indebetness of the debt to them.  How much you paid to "settle" your debt obligation on a debt in good standing is between you and the credtior, and is not a reportable matter to your credit file.  $0 owed is $0 owed.

You should have a final credit reporting that shows a current status of paid, no delinquencies, and a $0 balance owed.  That should be all that your credit file would contain. 

 I thus see no way for them to make any negative reporting to your credit file that would be accurate.  If they somehow do make any negative reporting, then it would clearly be inaccurate, and disputable.

[Walt_K]

---

@RobertEG wrote:

You dont have a delinquent debt. The current status of the account is reporting, and has apparently always reported, a status of payed as agreed.

When you pay an account, regardless of its prior status as delinquenct or in good-standing, the account must report only one current status.  That status is one simple four-letter word.  PAID.

The recordation of a settlement for less than the full amount of a debt is entered by way of a separate "Special Comments" code in your CR, and is ONLY applicable for entry into your CR if it refers to settlement of a delinquent debt. 

Additionally, when you "settle" a debt, the creditor is required to update your credit file to report a $0 balance.  That represents no more indebetness of the debt to them.  How much you paid to "settle" your debt obligation on a debt in good standing is between you and the credtior, and is not a reportable matter to your credit file.  $0 owed is $0 owed.

You should have a final credit reporting that shows a current status of paid, no delinquencies, and a $0 balance owed.  That should be all that your credit file would contain. 

 I thus see no way for them to make any negative reporting to your credit file that would be accurate.  If they somehow do make any negative reporting, then it would clearly be inaccurate, and disputable.

---

Robert, I remember some threads a while back regarding offers to do loan modifications with people who weren't in trouble with their mortgages and all kinds of crazy reporting problems.  Is the difference that they were modifying the loan and still having payments going forward whereas this person is paying the account in full?

[RobertEG]

If I am reading your post correctly, you appear to be referring to a situation where debt remains, but terms of the contract are renegotiated. 

The debt would not be paid in full.

"Settlement" is a broad term, and is not, per se, a specific credit reporting term used in any of the credit reporting fields.  Current status, when an account is settled, is simply paid, with four sub-categores to list its status before it was paid, such as "was a collection, was a charge-off, was a repossession."  But nothing related to the amount of $$ involved in the settled, or paid, status.   Technically, a payment in full is a settlement.  However, such a payment of the debt owed would not warrant the additional, special comment to indicate anything other than just paid in full.  The term "settlement" is loosely used for convenience to distinguish payment for less than the full amount, but that term is not specifically used in credit reporting.

When there is a settlement of the debt where the creditor considers the debt to be paid, but they accepted less than the amount of debt entitled to them at that time, they are entitled to record that under a separate credit reporting code as a "Special Comment" of clarification.  To identify the differences, the Current Status is reported under field code 17A, and any additional comments relevant to that paid status is provided under field code 19, Special Comments.  The special comment code under field 19, rightfully, does not even use the term settlement.  It reads "Account paid in full for less than the full balance."

An account not paid in full, but rather replaced by a new account, would not be reported as having the debt paid. It would be closed, and the account type information would be updated to indicate that it was transferred to a new account, and to whom.  Closed and paid are entirely different.