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Deluxe247

Effects of paid for less than balance on credit score

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Hi,

I'm potentially settling a closed credit card debt with Wells Fargo that they're suing me for for less than the amount owed. I know that this hurts my credit score but does anyone know a general effect of it on my overall score? I have no other collections on my score, have student loans i'm paying, and a pretty low limit credit card that I pay off in full every month, been using/building credit for around 7 years. 

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46 minutes ago, Deluxe247 said:

Hi,

I'm potentially settling a closed credit card debt with Wells Fargo that they're suing me for for less than the amount owed. I know that this hurts my credit score but does anyone know a general effect of it on my overall score? I have no other collections on my score, have student loans i'm paying, and a pretty low limit credit card that I pay off in full every month, been using/building credit for around 7 years. 

I don’t know that there’s any way way it can be determined how much it will hurt your score right now, but I believe it will help in the long run as long as you stay current on your other obligations.   

Don’t look at the short picture.   Also, as has been stated many times on this site, don’t manage your credit score.   Manage your debt.  

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What's hurting your score more than anything is the defaulted debt. If it hasn't been updated in a while, you can expect your score to drop a few (10-20) points when WF updates it to reflect the settled status. The reality is a 'less than full amount' flag probably only costs a couple points more than paid in full due to the defaulted status of the debt. 

If it's near the 7-year mark, it's a moot point since it will fall off soon. 

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I think FICO changed their algorithm a few years ago to allow fully paid and settled entries to have better scores than defaults that have not been dealt with. That was at the behest of the JDBs and banks who before this were finding people who were saying that since settling will negatively affect my score even more at this point, there is no worth in settling the account, and those debtors were correct before the changes were made.

With that said, we cannot tell you exactly what will happen in each situation because the algorithms what determine your score are a closely guarded secret. That is why, rather than managing your score, you need to manage your debt and your reports and don't worry so much about the score.

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