Understanding the contents of your credit information report is the first step towards building a good credit score. One of the most important sections of the credit report is the “Accounts” section. This section contains the details of all the credit facilities you have availed including the name of lenders, type of credit facilities, the amount outstanding, payment details, and ‘Status’ of the account.
Having a ‘settled’ or ’written-off’ status in your credit report is viewed as a red flag by future lenders. It may thus get difficult for the individual to obtain credit in the future.
How Does ‘Settlement’ Impact Your Credit Score?
A settled account means you paid less than the actual amount owed. Since you didn’t fulfill your financial commitment in full as agreed when you took out the loan, and have failed to meet the terms of your loan contract, your credit worth is bound to take a hit. The ‘settled’ status will be recorded in your credit report and can remain on your credit report for up to7 years.
Debt settlement can help lower the amount of debt you need to pay and help you avoid bankruptcy. Even though there’s a risk that lenders may not agree with the debt settlement, some may take the offer of a lower payment amount so they could recoup part of their losses.
What Is The Difference Between Closure and Settlement On A Credit Report?
A “closed’/’paid-in-full account’ means you’ve paid the entire amount – principal and interest. If you have been disciplined about your repayments, the closed account will remain on your credit report for 10 years. This will in fact help improve your credit worth and credit score, as it portrays you as a responsible borrower. That will make you an appealing applicant if you decide to apply for credit in future.
Settled status on a credit report means you have opted to pay less than the whole amount owed. The lender had to forgo either part of the principal or interest you owed because of your inability to keep up with the repayment schedule. This is viewed as a lack of financial prudence and a high probability to default in the future. The “settled” mark thus bears a negative inkling on your credit report. The status remains on your report for 7 years.
When is Settlement a Good Option?
Timely repayment of debt is always the best way out of debt. However, circumstances may hamper your repayment capability and if that is the case then a settled debt is better than an unpaid one. Although the settlement will leave a negative mark on your credit report, its impact is much less than the effects of leaving a debt unpaid
How To Remove Settled Accounts From Your Credit Report?
Approach the lending institution, pay the remaining amount and get a ‘No Due Certificate (NDC)’ or ‘closure letter’ for the debt. Once you have paid off your loan in full and the bank has reported this account as “Closed” to the Bureaus, your credit information report will be updated. The loan status will show ‘closed’, this will improve your credit score significantly.
If you need further guidance on steps to improve your credit score, feel free to reach out to our Debt Counsellors, we help you get better at credit management.
