How settled accounts affect credit scores

Written by ciaran john
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When you fall behind on your debt payments, your creditors can notify the credit bureaus about the delinquent debt, causing your credit score to drop. When you "settle" a delinquent account, the creditor agrees to accept a payment for less than the balance owed and writes off the remainder of the debt. Settled accounts have a negative impact on your credit score.


Lenders check your credit report to get a snapshot of your character. If your credit report shows that you have a history of failing to pay off your debts, lenders are unlikely to approve you for any new credit products. When you settle an account, you pay less than you originally agreed to pay when you took out the loan. Therefore, settled accounts reflect badly on your character from a credit underwriting perspective.

Score Factors

Credit bureaus determine your credit score by looking at data related to a number of different factors. Settled accounts negatively impact the portion of your score that relates to payment history and payment history as a whole accounts for about one-third of your overall credit score. Each account remains on your credit report for up to seven years after the last account activity. Consequently, a settled account could impact your ability to borrow money for years to come.


While negative credit events remain on your report for up to seven years, your recent credit activity has more of an impact on your score than events from several years before. If you pay your current liabilities on time, this has a positive impact on your score. You can also improve your credit score by keeping low balances on your revolving credit lines and making sure you do not apply for credit too frequently, as frequent credit applications are seen as a sign of desperation. Therefore, while you cannot remove the settled account from your report, you can offset some of the harm it causes by improving your current credit management.


Delinquent debts have a negative impact on your credit score, so by settling a debt, you do not worsen your score. In some situations you may even cause your score to rise very slightly. When you settle an account, you no longer have to contend with phone calls and letters from collection agencies relating to that particular debt. You also avoid the possibility of your creditors taking legal action against you in order to collect the debt. Therefore, settling a debt can have a positive impact on your life even if does not always help your credit score.

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