“Dear Steve,
Until five years ago, I had been having horrible credit problems. I stopped paying everything from the past, and started living without credit, spending within my means. Almost everything has fallen off my credit report, since most are over 7 years old. I have one bad account that is only five years old. I received an offer to settle from a collection agency (not the original creditor) for 50%. My question is, will taking advantage of the settlement offer “reset” the seven-year period on my credit report (showing I settled for less than the amount owed for the *next* seven years)? Or will it just show as paid, and fall off in two years? If settling will reset the seven years, I just won’t pay it and I’ll wait for it to fall off in two years.
Should I accept a settlement offer from a collection agency?”
When you accept and pay the settlement it should be reported that the amount you paid in the settlement as paid and the amount forgiven as a bad debt. Regardless this should fall off your consumer credit report no longer than 7.5 years from the time it was first reported delinquent by the original creditor.
If you do decide to take them up on their offer, be sure to get the agreement in writing before you send the payment and keep that letter in a safe place in case someone tries to collect the balance later.
While it sounds like you are doing a good job of living within your means now, I’m concerned that you have not done anything to rebuild your credit. A good credit score leads to less expensive insurance and financial products you may need in the future like a car loan or mortgage. Please read my guide to help you easily rebuild your credit.
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I stopped paying all the old stuff when I started college seven years ago. Now that almost everything has fallen off my report, I have gotten some credit. This past Christmas, I was able to open store credit cards from HH Gregg, Wal*Mart, and Amazon, as well as an unsecured Discover card. I pay off all balances every month. I have also been paying three student loans for the last five years, having never missed a payment (and even paying one of them off early!). I hope to buy my first house as soon as this last blemish is gone. My goal with credit is to NEVER pay a late fee or non-mortgage or non-student loan interest EVER again!
Be aware, store cards and student loans carry less credit rebuilding power than a major unsecured credit card. Store cards and gas cards primarily can be a sign nobody else will touch you to potential future creditors. Make sure the Discover card is reporting to the credit bureaus and that should help.
Sounds like you learned some good lessons. What is your credit score today?
The Wal*Mart card gives me a credit score every month; it reported 624 last month, and 635 this month. I was working with a used car salesman, and the three denial letters I got reported scores of 607, 636 and 673. I ended-up not buying a car, deciding to “make payments to myself” instead to save for one. I live in a city and have had few problems living without a car for the last two years. I’ve got an awesome circle of friends; I provide the best parties, they drive me around when I really need it.
My wife and I only have one car. I wish I lived in an area where zip car was available but have you considered just a daily car rental when you need one? A compact car is very cheap to rent.
Looks like that guide I sent you the link for will accelerate your credit rebuilding. Others have reported good results with it. Best yet, it doesn’t put you in any debt.