If I settle a credit card debt, how will it impact my... - Other Questions


Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » Questions » User Questions » Other » If I settle a credit card debt, how will it impact my credit score?

If I settle a credit card debt, how will it impact my credit score?

Answered on | Updated on January 19th, 2012
The content is accurate at the time of publication and is subject to change.

To put the settlement process in motion, the majority of banks require that an account be delinquent, meaning that several monthly payments have been missed. If you have a credit card account that has been reported to any of the three big credit scoring agencies as delinquent, your credit score will suffer as a result. The more payments that have been missed, the worse off you score will be.

As soon as a negotiated settlement is reached, the bank will issue a report to the credit bureaus that the account has been “paid, settled for less than amount owed.” The ideal situation would be to have an “account paid in full” notation on your report, which would result in the most positive impact upon your score. However, your credit score will edge upwards as a result of settling an account. This is true even if the amount settled for is less than what was originally owed because settling is better that having an account that is outstanding or delinquent.

Most importantly, what you want to have on your credit report is an indication that the item has been paid. Make certain that you negotiate for this to happen with your creditor as a part of the settlement. Even better, you should attempt to have them delete the item altogether once you pay the settlement amount. Should the creditor agree to the deletion, be sure to get their agreement in writing.

It is helpful to know that activity on your credit report is ranked in accordance to how current it is. If your aim is to spruce up your credit score prior to attempting to secure a loan, it is best not to pay on any outstanding debt that has sat inactive for longer than two years. This is because making a payment on long-inactive accounts will rank the account as current on your report and will likely have a negative impact upon your score. If you are simply looking to clean up your credit history in order to be considered more creditworthy in the future, then go ahead and pay off any charged off accounts that are lingering on your report.

Finally, if you are weighing debt settlement as an option, is it perhaps wise to consider whether or not lowering your credit score temporarily in order to settle an old, delinquent account is worth your while. If your delinquent debt is a considerable amount and agreeing to a settlement on the account will save you a tremendous sum of money, then it could very well be worth taking a hit to your credit score in order to settle the debt.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
The Citi Rewards+℠ Card - the only credit card that automatically rounds up to the nearest 10 points on every purchase - with no cap.
Excellent, Good Credit
Earn unlimited 1.5% cash rewards on all purchases.
Good, Excellent Credit
See Rates & Fees
Perfect credit not required for approval; we may approve you when others won’t
Fair/Bad Credit

Other Questions in

You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!