Does Accepting a Settlement From a Debt Collector Affect Your Credit?

Your credit rating is a time-sensitive picture of your financial health through a collection of personal and credit account information. Lenders, potential insurers, employers and landlords use your credit score to determine if you are credit worthy. Accepting a settlement from a debt collector will affect your credit, but you can control the extent of the impact.

What is a Settlement?

Your three-digit credit score is calculated based on the information provided to the credit reporting agencies from existing and potential lenders as well as information that is available publicly. A settlement from a debt collector is often listed in the accounts section of your credit report as "settled for less than originally agreed." The settled account is closed, but that one statement can remain as part of your report and negatively affect your score for seven years.

Credit Impact

Payment history is one indicator that has a significant impact on your credit score. How you pay your bills accounts for roughly 35 percent of your total credit rating. Accepting a settlement from a debt collector may seem like a responsible action, especially if you are not in the position to pay the entire balance, but the negative implications of a settled account is a red flag to potential lenders. The upside to accepting a settlement is that the debt collector will not pursue a judgment for the outstanding debt. Judgments can affect your credit rating for up to 20 years in some states.

Agreement Stipulations

Credit reporting agencies list credit account information that debt collectors and other creditors report to them. As part of the settlement agreement, negotiate with the debt collector to remove the negative account entries attributed to the debt from your credit report. This includes the delinquency entries the collector likely reported to your account prior to your accepting a settlement. If you can have those negative items removed, the settlement will not affect your credit score. Get the account removal stipulation agreement in writing from the debt collector.

Alternatives to Settlement

Accepting a settlement agreement from a debt collector is better than not paying the debt in terms of potential judgment litigation, especially if you can have the account listing removed from your account. If the debt collector refuses to remove the account listing, your credit is negatively affected for at least seven years, whether you accept the settlement or not. Alternatives to settlement include renegotiating a repayment plan with the debt collector. If you make your payments on time, your payment history will be positively affected.

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What Credit Score Do I Need to Rent an Apartment?

Your credit score can affect many aspects of your financial life, including your ability to rent an apartment. Along with your income, your credit score is a key factor on most apartment applications. Landlords use your credit score to gauge whether you will reliably pay your rent on time. A bad credit score makes finding an apartment more difficult, although not impossible.

Key Score

A credit score of 680 or higher is considered "fair or better" and generally makes renting an apartment easy. According to a study conducted by the credit bureau Transunion, among tenants with credit scores of 680 or above, only about 10 percent ever faced a 90-day delinquency on their rent. The likelihood of a 90-day delinquency was much higher among tenants with a credit score of below 650 (31 percent) and 600 (51 percent).

Getting Your Score

Your credit score is compiled by each of three bureaus--Equifax, Experian and TransUnion--and reflects your ability to pay back debt and pay your bills. The bureaus collect information from landlords, utilities, insurance companies and credit card companies to generate the score. You can get your scores from all three bureaus by signing up for a free 30-day trial at freecreditreport.com. If you do not want to end up paying for the service, simply cancel within 30 days.

Overcoming a Bad Score

In some cases, such as with smaller apartment buildings and single-family homes for rent, the landlord might not require a credit check. If a credit check is mandatory and your score is low, you still may be able to rent the apartment by putting down a bigger security deposit. It is not out of the question to be asked to put down three to six months' rent as a deposit if you have a bad credit score. You can try to negotiate a payment plan for your security deposit, but be aware that failure to pay the deposit on time could result in immediate eviction.

Your Credit Check

One strategy if you have a low credit score is to ask whether you can provide the report instead of having the landlord initiate a credit check. In this scenario you can include a letter that explains any issues with the report and paints your credit situation in the best light. This action, in combination with a letter of reference from your previous landlord, is often enough to mitigate your bad score. Also, too many "hard checks" on your credit by landlords or companies can have a negative effect--albeit a small one--on your score.

Get Some Backup

If a landlord is set to reject your application, you still might be able to sign an apartment lease if you get a guarantor who is in better financial standing than you. A guarantor is a co-signer from whom the landlord will seek payment if you violate the rental agreement. Guarantors can be a friend or relative, or you can hire a company such as WeCosign Inc., which co-signs your lease for a monthly fee.

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How to Get Damaging Information Off of My Credit Report

Removing damaging information from your credit important can improve your credit score. Information such as collection accounts, charge offs, late payments, foreclosures and bankruptcies can harm your credit for years. The Federal Trade Commission reports that federal law allows credit bureaus to report most negative credit information for seven years. The credit bureaus can list bankruptcy information on reports for at least 10 years. Removing negative information that is accurate and timely is impossible, according to the FTC, although there is at least one legal loophole. However, the FTC strongly recommends that you direct your credit repair and avoid so-called credit repair agencies. The agencies often make promises they cannot keep while collecting expensive fees.

Instructions

1

Get a current copy of your credit report from AnnualCreditReport.com. The Federal Trade Commission endorses the site as a source for free credit reports under terms of the Fair Credit Reporting Act. Visit the site to view and print reports from major credit bureaus Experian, TransUnion and Equifax.

2

Read the credit report to identify damaging information. Contact creditors directly to demand removal of information that is incorrect or outdated. Call the customer service number for the creditor to request that it update your credit report to remove damaging information such as a credit card charge off that is more than seven years old. Alternatively, ask the creditor to correct an account that is showing as open and past due although you paid it off several years ago. Follow up by sending a letter recapping your request. Get the creditor's mailing address from customer service.

3

Contact the credit bureaus directly as an alternative. Dispute damaging information on your credit report that is outdated or wrong by writing letters to the credit bureaus, or enter disputes online or by phone. Follow instructions on the credit reports to file disputes by mail, phone or online.

4

Ask creditors or debt collectors to delete delinquent accounts with balances from your credit reports. Offer to pay the balances in full in exchange for the arrangement -- a process known as "pay for delete." This is a legal loophole for removing damaging information from credit reports, but not all creditors or debt collectors will agree to the arrangements.

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Can One Speeding Ticket Affect Your Credit Score?

Going a few miles per hour over the speed limit could cost you thousands of dollars on a mortgage, if you can get one at all. However, a speeding ticket does not always damage your credit rating, because the governing authority decides how to collect speeding fines. Thus, you should make a good faith attempt to pay the fine.

Identification

A single speeding ticket can affect your credit. Although governments do not report tickets directly to the credit reporting bureaus, the government can send the fine to a collection agency who then reports the debt to the credit bureaus. Collection accounts are one of the seven deadly sins that can appear on a credit report and take over 100 points off of your credit rating.

Time Frame

A collection account for any kind of debt affects your credit rating for seven years, even if you pay off the entire balance. If you have an excessive amount of fines, the government can sue you too. Any civil judgment involving money affects your credit rating about the same way as a collection account and for seven years.

FICO 8

Even if your government sends the account to a collection agency, the account may not affect your credit rating. The FICO 8 credit scoring system does not lower your credit rating when you have a collection account worth less than an original balance of $100. However, if you apply for credit with a lender that uses an earlier version of the software, the account will damage your credit rating.

Tip

You usually have at least 60 days to pay a speeding ticket before a government will consider sending it to a collection agency. Most courts will allow you to put a down payment on any fine and then have you pay it off in installments. You can also try to fight the ticket in court. For example, if you were speeding to get someone to the hospital because of a medical emergency, the court might waive the ticket. Many courts will remove the speeding ticket from your record after you take a defensive driving course.

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Does a Credit Report Freeze Block Your Credit Score?

Credit Report Freeze Blocks New Access

A credit report freeze blocks your credit file, including your credit score, from new inquiries. All three credit bureaus can charge a fee to freeze credit reports as well as to lift or remove a freeze from credit reports. Fees vary between $3 and $20 by state; a few states allow freezing services. Fees may be waived for consumers targeted for identity theft.

Credit Scores Available During Freeze

A credit report freeze does not block existing lenders from accessing your credit report activity or credit scores. Potential lenders as well as potential identity thieves receive a code when attempting to access frozen accounts. The code only references that the credit file is frozen, offering no indication as to the consumer's credit score.

Bottom Line

Freezing your credit report is one way to prevent identity thieves from opening new accounts in your name. If your credit file is frozen, you must take steps to unfreeze it several days before applying for a new loan.

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How to Increase a Credit Score With Lines of Credit

Caution and planning need to be applied when trying to increase your credit score -- especially if you are using new lines of credit. Every time you apply for a loan or increased credit limit, a mark is placed against your credit score. Too many applications in a short space of time will result in your credit score being downgraded, the very opposite of what you are trying to achieve. Lenders get nervous about multiple applications because it indicates a possible financial problem.

With forethought and careful planning, there are several ways to successfully improve your credit score by utilizing lines of credit.

Instructions

1

Use your current lines of credit to increase your credit score. Check your available balances and choose the card that you use frequently and that has at least 25% of available credit. Ways to apply are online, by telephone or mail. Applying online is the quickest method, and some card lenders will give you an instant decision.

2

You will generally be asked how much you want to increase your limit and why. It is best to ask for an increase of no more than 50% of your current credit limit. For example, if you have a limit of $3,000, don't ask for more than an extra $1,500. Know why you want an increase; maybe a family vacation or a large purchase. Remember, you don't have to use the increase. The higher the difference between your credit limit and your unused credit, the more your credit score will increase.

3

Applying online may mean that your lender will not access your credit file to assess your status because they already have your personal details and history. This means that you will not receive a mark for applying, which leaves you able to apply to someone else to increase your limit without appearing to have multiple requests. Most online facilities will inform you before you "click" to increase your limit that a credit search will be performed. If they do, try another lender first.

4

Don't close card accounts simply because you never use them. If you have a selection of cards operating properly, your credit score will increase.

Manage the use of your cards. Use one for a while, then switch to another and so on. But make sure you stay well within your credit limit. Lenders like to see your cards used, even if only for small purchases. The more you use your cards, the greater the chances of improving your score.

5

Paying off an existing loan that is close to completion is beneficial. This gets marked on your credit file as "satisfied." Lenders like this. Once done, you can apply for another loan, possibly at preferential interest rates. Your chances of being approved are high, and this will result in an increase in your credit score.

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How to Get Your Credit Report by Calling

Ordering your credit report by phone is one of the safest methods, according to Bankrate.com. You don't risk your check or money order getting lost or stolen in the mail; you also eliminate the risk of online fraud. Each credit agency (Equifax, Transunion and Experian) allows you to order a copy of your credit report by telephone. You can also request your free annual report by telephone.

Instructions

1

Request your free annual credit report by calling Annual Credit Report at 1-877-322-8228. All consumers are entitled to a free copy of their credit report every 12 months. You will receive the report within two to three weeks.

2

Order your Equifax credit report by calling 1-866-493-9788. Equifax offers several product choices starting from around $10. Purchasing your credit score is extra.

3

Order your Transunion report by calling 1-800-888-4213. Transunion charges $11 for each copy. The report will arrive within two to three weeks.

4

Order your Experian report by calling 1-888-397-3742. Experian charges $10 for the report. You can add your credit score for $5, a total of $15.

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