I Settled a Small Debt. Will it Hurt Our Chances of Buying a House in Three Years?

“Dear Steve,

Was paying a collection in full over a period of 12 months. Still needed 4 more payments when they called and offered to settle the remaining balance of $500 for $300. Against my better judgment I went ahead and settled even though I originally planned to pay the full amount. I will be applying for a mortgage in about 3 years. My husband earns about $118,000, I earn $74,000 and we will have about $60,000 saved within the next 3 years, plus we’ve been on a snowball debt repayment plan and are halfways through paying all our debts off.

How will this settlement affect my application for a mortgage in the future?


Dear Nancy,

No, and well, possibly a little yes.

It’s not the settlement itself that might cause a tiny little issue. It’s actually the fact that you had negative information on your credit report from the collection account to begin with.

If the collection company reports this accurately they will show $200 was written off. That’s a little mark for a little amount. But knowing collection companies as I do I’m not at all confident they will even report it. They tend to not update the credit reports after payments.

I’d just wait a couple of months after the account was paid/settled and get a copy of your consolidated credit report. I’m more concerned about the collection company not reporting this was taken care of than the little settlement.

Now that you’ve resolved your old issues, you may want to focus on building good credit in anticipation of applying for that mortgage. Unless you are still in the credit game, you can’t bring your score back up.

Just don’t close your cards when you get them paid off. Keep the three oldest ones open and use them from time to time. You don’t need to carry a balance.

I think you’ll be just fine and I wouldn’t worry if you follow my advice above.

See also  The Credit Report is Not Showing The Debts That I Settled. - Sara

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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