For my credit score this fall is it best to settle with Macys or leave the account open and make payments?

Question

I'm trying to improve my credit before I move this fall as I will need to pass a credit check for a new apartment. My credit is borderline poor and is moving up but I'm so borderline these decisions seem important. Right now I have a Macy's account that was with a creditor, and was referred back to Macy's. They said if it doesn't get referred to a new collection agency by next week they can settle with me and close the account or I can make payments and leave it open. Which would be best for my credit? The financial hit is about the same for me as far as the sacrifice of paying this one lump sum settlement or making monthly payments, I'm just interested in what will help my credit most by fall. 

Thank you!

CatDad · Accepted Answer

Please clarify: Did the Macy's card completely default/charge-off?

Paying back a defaulted/charged-off credit card will not restore your credit rating..Your credit report will be updated to a "Paid Charge-Off," which, while slightly better, is still a seriously derogatory item. Per the Fair Credit Reporting Act, a charge-off, whether paid, settled for less or not paid at all, will remain on a consumer's credit reports for up to 7 years....so you'll be stuck with damaged credit regardless of what you do.
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- Never make the mistake of paying a debt collector without first getting a signed settlement agreement on their letterhead stating that the account will be paid in full upon receipt of the agreed-to amount. If you don’t, the debt collectors will come back demanding more money.
- Never give out your checking account/bank routing numbers to debt collectors for making electronic debit payments. Pay only via USPS money order. Photocopy and keep in your permanent records along with the settlement letter.

Anonymous · Answer

There is only one way to get 800+ scores and top ratings.
Use a credit card for things you need, and pay in full each month.
It is 100% myth that carrying balances is good for your credit.
By paying in full you never pay interest either.

Do not allow that Macy's card to go on your credit reports.
Call Macy's and offer to settle for half the amount if you have cash on hand.
If you don't, leave the account open (do not close it!), and continue making payments.
Closing your account will wipe out part of your "length of credit history" which is 15% of your fico.

The only option for you is to open a secured card.
If you open a credit card - you may be tempted to charge and not pay in full again.
Also, the cards you will qualify for carry high interest rates, and high annual frees, and all kinds of hidden fees.
Stay away from "bad" credit cards - they will only ruin your life with fees.

If you have trouble finding an apartment, you might have to do what I did.
Offer an extra 3 to 6 months worth of rent payments up front.
I did this, and saved the rent money to buy a car.
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For my credit score this fall is it best to settle with Macys or leave the account open and make payments?

2 Answers