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If there's a settlement before going to court between debtor & debt collector, Is that still reported to the Credit Bureaus?

Tampa, FL |

I believe that if an agreement is reached before going to court also the situation shouldn't reach the credit report because the debt has been already settled. I've read that even debt settlements are bad for the credit.

Attorney Answers 4

Posted

What will not reach the credit report is a public record (the judgment), which is of course highly negative. Public records also appear on investigative reports (like those sold by Lexis/Nexis) essentially forever, and such reports are available to *anyone*, not just credit grantors and others who have a permissible purpose to see your credit reports. Also, public records also appear on the websites operated by the clerk of court in your area, and on myflorida.com.

What *will* reach your credit report (unless you negotiate for it not to appear, or to appear differently) is a "settled" notation on the tradeline with respect to that creditor. The other possible notations would be "paid in full" (the best possible at this juncture) or "paid". The creditors also have the power to remove lates. None of these will be freely granted, you will have to negotiate for them.

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Posted

Thanks Mark! So if negotiated it can still be negotiated not to appear on the credit report? I imagine that's why it is so important to carefully check the agreement sent by debt collector to verify that all terms are addressed clearly.

Mark Hankins

Mark Hankins

Posted

The creditor's agreement with the bureaus requires them to report accurately. They're chary of negotiating how an item will report because if they play around too much, they could get audited and in the worst case scenario the CRA would drop them as a customer, which would mean they couldn't report any of their customers' delinquencies. So if you get the changes you want, it will either be through hard-nosed negotiating or a compelling sob story ... one of the two.

Asker

Posted

Thanks Mark. So even if someone wants to do an effort to settle Is it still reported? Incredible ...maybe it's just better to let them report it.

Posted

According to www.myfico.com, "Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments." However, this info is not one of the 5 factors in determining your FICO score.
As Mr. Hankins said, you can negotiate what is reported to the credit bureaus. If you have a written settlement agreement and they report something contrary to your agreement, you may be able to pursue a claim for violation of the Fair Credit Reporting Act.

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Posted

Thanks Robert. So that means that if there's no judgment it won't affect the fico score but it will appear on the credit report if the contrary is not negotiated?

Mark Hankins

Mark Hankins

Posted

I would view reporting contrary to the settlement agreement to be a contractual violation rather than (or in addition to) being a FCRA violation. A liquidated damages clause and a clause that would allow for a court mandate would be nice, but good luck getting the other side to agree to them.

Asker

Posted

Sorry Mark, I didn't understand. You mean that if they settle the debt collector should/shouldn't report it to the bureaus? What is a court mandate? Thanks!

Posted

Unfortanately you are incorrect. Compliance with the terms of the financing is what determines what is reported to a CRA. If a settlement occurs they may have to accurately report the debt status..BUT it may still show as an R9 or I9 (way past due) because it wasn't paid properly.

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Posted

Oftentimes a recent paid collection account can do more damage to your credit than an old unpaid collection account. Because many credit scoring algorithms are proprietary in nature, it would take an expert, like Evan Hendricks, to tell you how much variance there might be in the respective score. When you settle a debt, you can insist on language in the settlement that addresses reporting or nonreporting of debts with the credit bureaus. An example might be: Debt Collector further agrees (a) not to issue a Form 1099-C to Good Consumer due to the nature of the dispute or for alleged discharge of indebtedness based on the nature of the dispute, (b) request the deletion of its trade line to the three major credit bureaus, Equifax, Experian and Trans Union and any other credit bureau if notice is given to debt collector that the trade line is being reported and (c) to request the deletion of any non-account review inquiries from debt collector or its affiliate by written request to the three major credit bureaus, Equifax, Experian and Trans Union and any other credit bureau if notice is given to debt collector that such credit bureau is showing a hard inquiry from debt collector or its affiliates. Debt collector will furnish to Good Consumer a copy of the Automated Universal Data ("AUD") form submitted to the referenced credit bureaus requesting deletion. Debt collector in no way guarantees the conduct of the credit bureaus. I wish you the best in the future.

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Posted

Thanks Steven. That means if the debt is settled, (1) we can always negotiate not to report that settlement (2)To make sure they don't send a 1099 for the deficiency to the IRS (3) To erase their inquiries? Some attorneys here explained that the CRA demands accurate reporting. Probably the debt collector would tell me that's impossible to negotiate because the reporting policies? Thanks again!

Steven Michael Fahlgren

Steven Michael Fahlgren

Posted

I have heard the same thing but it is done all the time.

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