Which impacts your score the most?

[Gsgatormom]

I have an old charged off credit card that I am considering settling. Right now it is on my credit reports as a charged off account that is still reporting each month with a climbing balance (due to interest). I was told by the credit grantor that if I settle the account, by law they are not allowed to remove it. I was told that it will remain as a derogatory account but will show paid, settled for less. How does this impact your score? Is there a difference in the point system between a charge-off and paid/settled for less? Thanks.

[Ahntara]

"...by law they are not allowed to remove it..."

This is actually a misconstrual of the truth. It's also a typical response. There is no law which compels or requires credit reporting. The FCRA says that IF they report, it must be 100% accurate.

Data Furnishers have contractual agreements with the CRA's to provide info and/or pull CR's. Both the service contract and CRA operating policies are designed to preserve 'file integrity', which is a high priority to the CRA's. After all, information is their product. They don't want it diluted or altered.

"...paid, settled for less..."

Any derogatory designation (as indicated by many datafields in the TL) combined with the 'date last reported' may cause a significant drop in credit scores. FICO-based software mistakenly views updated derogs as recent and penalize in the History category, which currently factors as up to 35% of the total score. So, getting a collection account updated via dispute, standard procedure or PIF/settlement can be a score-killer. But the damage is relative to what has gone on beforehand. You stated that the credit grantor is already updating monthly and adding to the balance owed. So, this is already dinging your score to the maximum. I can't see how adding a 'paid' or 'settled' designation could hurt anymore than it already is. What you want to determine is whether or not the Data Furnisher will continue to update after PIF or settlement or if they will allow this to age without continuous updates. The former does you no good. The latter may help over time, especially 13 months out.

"...difference in the point system..."

There is a distinct difference between a paid default and a settled one. Settled means that the creditor not only had to wait to get paid, but also had to accept less than the full amount owed (yeah, even if that amount was jacked up with excessive fees and interest). FICO-based programs reflect this. But, it's still better than an unpaid derog getting updated monthly.

So, what you need to find out is the DF's policy on reporting after payment or settlement. You may be able to post or search here for other posters experiences with that DF.

[Gsgatormom]

Can you also explain something else....on my credit report this account shows that a portion of the balance was written off. Doesn't that mean because they wrote it off as a business loss, they can longer collect that portion if they received a credit for it on their taxes? Are they allowed to continue adding interest on the portion they took as a loss? Shouldn't the IRS be notified? Thanks so much.

[Ahntara]

"...written off.."

The entire balance (at that time) was charged to profit and loss. This is compliance with FDIC regs and IRS rules. This action has no bearing on your liability. To quote willingtocope: "they still own it, you still owe it and they can still collect".

The CO simply moved this account from one column (good debt with a chance of being repaid) to another (defaulted debt). This is so the business doesn't have an inflated balance sheet with anticipated income when this account isn't in repayment. It's typical, standard operating procedure and means little to the consumer.

If and when they actually 'write off' the debt, they will send you an IRS form 1099C so that you can add the written off amount into your income. Consumers also get this form when they settle, only paying a portion of what is owed.

[Gsgatormom]

I offered a lesser amount. Actually, I offered to pay what was owed when the OC denied any knowledge of a previous settlement offer but cashed the check anyways. A year later, after disputing it, I received a notice from the OC that any pending court action had been dismissed and that all three bureaus were to reflect a zero balance. This all began in 2004. Date of last activity is listed as 2/05 when they wrote off a portion of the balance. The OC has since, continued to add interest. So the balance went from $143 to $910! OC still reports it monthly, Federal Reserve investigated, and sided with the OC. Never mentioned the letter I received from them. So here it is now, $910 and climbing, and continuing to destroy my credibility. So I called the recovery dept. I offered to pay what was outstanding at the time this began and requested a 1099C for the difference if they would delete it from my record. I was told, as mentioned, this was against the law. The OC stands firm that they have done nothing wrong and they feel that their info is 100% accurate. So, my question is this....if I continue to pursue a settlement, does that DOLA change from 2/05 (where it is now) to the date they receive the settlement? Or should I find an attorney? Know any good ones here in Ohio? I'd be happy to share with you who the OC is, but not in an open forum. How do I send you a private message on that? Thanks again for your help.

[betam4x]

A little advice (you must be in a one party state for this to work.):

1) Get something that will record phone calls. I often use skype and record it when I deal with CAs. While it's ringing, say the date/time out loud, and NEVER admit to owing the debt during the call. Play it off as though you are just trying to get it off your report.

2) Talk to them again and ask them for PFD. If they bite and say it's illegal, they've just violated the FDCPA.

3) Ask them what will happen if they don't. Sometimes CAs get nasty when you tell them you aren't paying. If they harass you, threaten to sue, etc. They may be violating the FDCPA if they don't follow through. Playing with fire, but if they bit number 2, chances are they think they are dealing with a dumbass and will rightly do so.

4) File a complaint with the AG/BBB, state the said violations above.

5) Write up an ITS letter and send it to them, state that the call was recorded and they made numerous FDCPA violations. Give them 10, yes 10 business days to remove the entry from your report and cease all collection activities. Include a copy of the complaints you made to the AG and BBB, and optionally legal paperwork you've filled out, but not turned in.

6) If they don't comply within 10 business days, sue. You'll net a few thousand dollars, as they've clearly violated the law.

If you really do just want to pay this, don't settle. It looks bad.

Also, many people may disagree with my above statements, but i've already used it once, successfully. It's cheap, dirty, and underhanded, but so are CAs.