Reader mail: credit reporting of settled HELOC
I settled my HELOC loan with Wells Fargo for less than the full balance. But I was never late/delinquent. In their letter to me, Wells Fargo states that they report to credit bureaus as follows: “Paid and Closed, for less than full balance, with no delinquencies in the account.” Equifax and TransUnion report this account as “Paid as Agreed”/”Closed” and only under comments they have “Paid and Closed, for less than full balance”. Experian reports it differently; their account status states “Paid in Settlement” and because the status is something other than “Paid, Closed/Never late”, they report it as a Potentially Negative Item. I called and asked them why they look at my Wells Fargo account as a negative item when the account was always current and settled. I assume “Paid, Closed/Never late” is more appropriate description. They disagree. Do I have a case or you think I just got lucky with Equifax and TransUnion?
You did NOT get lucky with Equifax and Trans Union. They both report the account as settled. The DEROGATORY comment is all it takes to have the account rated just like a charge-off for FICO scores.
NOT paying the full amount as per the contract is definitely NOT the same as paying an account as agreed.
However, since you were never late, one could of course argue that WF agreed to the NEW terms.
One could consider it a loan modification, but most likely a judge would rule that they can also report the account as settled (because it’s true)—and that’s derogatory.
You SHOULD have negotiated the CREDIT REPORTING at the time of the settlement.
When it comes to these negotiations, YOU are in charge if you’re willing to WALK AWAY from the property. The lender either agrees to the terms or gets wiped out when the 1st mortgage forecloses.
You need to review your myFICO reports to determine the impact of the settlement comments on FICO scores. The reported DATES are very important. If it’s your only derogatory account and you have other POSITIVE OLD tradelines, your scores should not be impacted too much. Carefully review the score factors to determine how the HELOC is rated.
If you have a legitimate dispute and they then report the account as disputed to the credit bureaus, it shouldn’t impact on FICO scores. Review your accounting and you might find some disputable charges or maybe there’s something incorrectly reported to the CRAs. If your credit is important, it might be worth the effort.
It’s really too bad that the people who SETTLE their accounts instead of just walking away from their overmortgaged homes get punished for the next 7 years with higher interest and insurance rates.
