When settling an old debt, many people assume that it’ll automatically be deleted from their credit report, but this is typically not the case. The account still gets reported — despite your settlement payment — unless you have a specific agreement with the creditor to delete the account. Even without this agreement, you still have some options.
Removing a settled account from your credit report can be hard work but well worth it for the impact it can have on your credit score. Typically, these negative accounts bring down your scores substantially and take a long time to recover from. If you manage to get that settled account off your credit history, you’ll notice an uptick in the overall score almost immediately.
How settled accounts can affect your credit score?
When you settle an account, it’s likely already gone to collections and affected your credit score. Although paying your debts is a good thing, a settlement agreement means you paid less than what you actually owed the creditor. The inability to repay your debts always raises red flags. It’s a negative entry on your credit report and can remain there for years. The impact on your credit lessens over time but can still drag down your score as long as it’s reported.
Can a settled account be removed from your credit report?
Unless the information reported to the credit bureaus is incorrect, you won’t be able to remove the settled account from your credit report. You can try to negotiate with the creditor, but legally the debt can stay on your credit report, regardless of payment status.
How long do settled accounts stay on your credit report?
Settled accounts stay on your credit report for seven years from the date of delinquency (the date of the first late payment). The clock starts with the original date of delinquency and won’t restart just because you made a payment or settled the debt.
How to dispute a settled account
When you settle the account, it should automatically be updated to show as settled, but if it’s not, you can dispute the account. You can also dispute the account if you had an agreement with the creditor to remove the account, but they failed to follow through.
Review your credit report
The first step is to check the account for errors. You can get a free copy of your credit report from each of the major credit bureaus — Equifax, Experian, and TransUnion — once a year at annualcreditreport.com. If you prefer, you can contact each bureau directly to review your report. You can also use a third-party credit monitoring site to check the accuracy of the account and file a dispute.
Gather relevant information about the closed account
If you have kept track of your payments and notice the creditor didn’t receive or track a payment, you’ll want to provide proof of the error. You can dispute other issues not necessarily related to the settlement, such as discrepancies with the amount, date, name, or address.
If the creditor agreed to delete the account after you paid, gather any documents you have to show this to the creditor.
Negotiate with the creditor or collection agency
You can ask the creditor or collection agency to remove the debt. Writing a goodwill letter to a creditor or collection agency, depending on who now owns the account, may be an option. Basically, a goodwill letter explains your situation, why you initially fell behind, and politely requests that they remove the account from your credit report. Being friendly and courteous when composing this letter is of utmost importance as building relationships with these organizations will likely result in more successful outcomes. You’ll want to keep all correspondence in writing.
File a dispute
If you have already contacted the creditor or collection agency and it has refused to remove the settlement, there are still other options available. Each bureau has its own dispute process that can take anywhere from 30 to 45 days to investigate. Be sure to provide as much evidence as possible when filing a dispute — this could include copies of letters and emails sent between your and the creditor/collection agency — as this will help make sure that your request is processed quickly and efficiently.
Wait until the dispute falls off your credit report
Negative accounts don’t stick around forever. After seven years, the settled account will automatically fall off your credit report. In the event that it doesn’t fall off, you’ll need to dispute the account.
If you’re unable to successfully remove your settled accounts before the seven-year period is up, there are still options available for improving your credit score. Doing things like paying down debts quickly and consistently or making timely payments on existing loans can help build up positive activity that counteracts any lingering effects caused by negative items waiting to drop off after seven years have passed.
Persistence is key
Removing a settled account from your credit report isn’t easy, but it is possible with some effort and persistence. If the original creditor or collection agency won’t agree to remove the account, file a dispute with one of the three major bureaus. With some hard work and dedication, you should eventually be able to get any inaccurate or outdated information removed from your reports.
Can I buy a house after debt settlement?
Yes, you can buy a house after a debt settlement. Paid debt is always better than unpaid debt, even if the settled account still appears on your credit report.
Do settled accounts affect your credit score?
Settled accounts affect your credit score because the delinquent account still appears, even after payment. The negative impact can last for seven years.
Is a settled account better than a charge-off?
A settled account is better than a charge-off account because it shows you paid your debt, whereas a charge-off means the creditor was unable to collect the payment from you.