A credit card debt settled with prejudice means the debtor and the debt collector reached an agreement on the debt to resolve the issue. Usually, settled credit card debts are for less than the full balance owed. Once paid and settled with prejudice, the debtor has no further obligation to the debt collector for that specific debt.
Federal Law
Settlement information appears on credit reports for seven years, according to the Federal Trade Commission. Settling the debt without prejudice has no bearing on the length of time the information appears on credit reports, however. Credit bureaus will update the account to show it as "settled," according to Experian, one of the major credit reporting bureaus.
Credit Score
Experian reports that settlement information is damaging to credit. Listing of the information causes credit scores to drop, although no one can predict precisely how much a debtor's score will fall. People with high credit scores could experience a large drop in their credit score. People whose credit was already bad may lose fewer points. Credit scores range from 350 to 850 with scores of 720 or higher generally representing outstanding credit.
Pay-for-Delete
The Federal Trade Commission maintains that negative credit information---such as settlement activity---must remain on credit reports until it expires. However, some people arrange to have the information deleted through negotiations with the debt collector. Some debt collectors may agree to so-called "pay-for-delete" agreements. In exchange for payment, the debt collector agrees to remove the entire account from credit reports. However, the practice is not common although it is legal. Many debt collectors refuse to agree to such arrangements because they feel the process undermines the credit reporting system.
Credit Repair
Some credit repair firms advertise that they can remove settlements and other negative information from credit reports. Some of the agencies may try disputing entries on credit reports by having debtors write letters to the credit bureaus. The Fair Credit Reporting Act, a federal law, requires credit bureaus to remove negative information from credit reports if the credit bureau cannot confirm that the information is true. The agencies have 30 days to investigate the disputed information and confirm its accuracy or delete it. Federal law also allows the credit bureaus to term some disputes as frivolous and allow the information to remain. Credit repair firms often charge expensive fees and are best avoided, according to the FTC.
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