So you have a collection, and you’re wondering if it’s better to pay in full or settle. It’s a common question and a good one. When you’re thinking about credit repair and saving your credit, you want to make the right choice. The reality is, the credit scoring model does not care whether you pay a collection or charged-off account in full, or settle for less. Since there’s no difference in how it affects your score, we suggest you try to save some money and negotiate for a settlement.
How Debt Settlement Affects Your Credit Score
If you choose settlement, you want to get the best deal possible. We advise you to use an experienced credit repair agency to help you negotiate the best settlement. Collection agencies will try to get more if they’re negotiating with you versus professional agencies that know how to navigate the industry and get the best settlements.
Once your settlement has been negotiated and paid, the creditor updates your credit report to show a status of “Settled” or “Paid Settled.” While a “settled” status is better than an “unpaid” status, the credit may rise slightly. Keep in mind that if the creditor has not updated the record in a few years, the score may drop slightly once the account is updated as paid. However, a “paid” status is what you need to really start growing your score. And besides, most mortgage lenders will require past due unpaid accounts to be paid before being approved for a home loan.
What FICO Says
Your credit score measures the likelihood that you’ll pay back the money you borrowed for a loan, mortgage, or credit card. The FICO credit score is a type of scoring model used to calculate your credit score and is used by banks, lenders, and credit providers to make a decision to lend to you or not. A debt settlement can remain on your credit report for up to seven years but will have less of an impact on your credit score the older the information gets, and as more positive information is added to your credit report.
How to Build Your Credit After Debt Settlement
The goal of debt settlement is to get rid of some of your debt, particularly if you’re struggling to pay past due balances in full. Once you remove that burden, you can focus on the rebuilding process. Because credit is based on borrowing, you may want to consider obtaining 1 or 2 credit cards or a loan to start rebuilding your credit. A consistent track record of timely payments is the key to repairing your credit score and staying out of debt. Because this can be tricky, we suggest getting some professional advice before applying for any credit.
How a Credit Repair Company Can Help
Navigating complicated areas like finance is a challenge for anyone who is not experienced and up to date with the latest laws and regulations. If you’re thinking about negotiating a settlement on a collection working with a credit repair agency will save you time and money. They will take over communications with the collection agency, so you no longer have to deal with them. After taking control they will settle the best deal possible. In some cases, they may even be able to negotiate a removal of the collection from your report. After your settlement, a good repair company will give you the tools and knowledge you need to repair your credit as fast as possible. The credit repair process can be much faster than you may think when working with professionals.
Remember, all credit is repairable with the right credit advice, action and patience.