Have you ever settled a debt, only to see your credit score barely budge? A settled account could still haunt you. Unless you have a specific agreement with the creditor to delete the account, your account still gets reported to credit bureaus despite the settled payment.
Removing a settled account from your credit report can require effort but it’s well worth it for the impact it can have on your credit score. Typically, negative accounts bring down your scores substantially and take a long time to recover from. If you manage to get a settled account off your credit history, you should notice an uptick in your overall score almost immediately.
What Is a Settled Account?
An account is considered settled when a lender accepts less than the amount it’s owed. When a borrower gets behind on their payments, lenders may make a deal or hand the process over to a debt collection agency. Collection agencies make an effort to recoup as much money as possible for the lender, without bankrupting the borrower. Although it may seem like a good deal for the borrower, going to collections reflects very poorly on your credit score and should be avoided.
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 typically lessens over time but can still drag down your score as long as it’s reported.
How long do settled accounts stay on your credit report?
Settled accounts stay on your credit report for seven years from the date of your first late payment, which puts you into delinquent status. The clock starts with the original date of delinquency and won’t restart just because you made a payment or settled the debt.
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 the debt can stay on your credit report, regardless of payment status.
Why should you aim to remove settled accounts?
If you don’t fix up your credit score, you may find you’ll have more difficulty getting loans, which could prevent you from being able to buy a car or house.
Plus, the amount of money you don’t repay could be considered taxable income with the federal government, which could be a tough surprise come tax season. Payment history makes up 35% of your credit score, and if that history reflects delinquency and an account that was technically never paid off in full, the settled account will drag down your credit score for years.
How long does the process of removing settled accounts usually take?
Disputes on your credit card normally take a few weeks to settle. That includes a request to remove settled accounts, even if they’re there properly and not in error. If you think a settled account should not be dragging down your credit score, you should reach out to the reporting agency directly to ask them to remove the negative reporting on your credit score.
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 it 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 also dispute other issues, even if they aren’t 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, you still have other options. 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 you 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 positive activity that counteracts lingering effects caused by negative items waiting to drop off after seven years have passed. Use your credit card wisely moving forward so you don’t do further harm to your monetary prospects. You may even be able to raise your credit score by 200 points with the right moves.
If you’re looking for ways to build your credit, MoneyLion is here to help! MoneyLion offers a free and convenient way to find offers from our trusted partners to help you improve your credit — such as credit monitoring, credit report disputes, and getting credit by paying bills. A good credit score can lead to lower interest rates and increased borrowing power on loans and credit cards.
Getting a settled account off your credit report
Removing a settled account from your credit report isn’t easy, but it is achievable 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.
FAQ
Can I hire a credit repair agency to remove settled accounts?
Yes, you can pay a credit repair agency to attempt to get a settled account off your credit score, but there’s no guarantee it will work.
What should I do if the credit bureaus refuse to remove settled accounts?
If credit bureaus won’t remove a settled account from its calculation into your credit score, you’ll have to wait seven years for it to fall off on its own.
Can I remove settled accounts if they were sold to a collection agency?
Yes, settled accounts can be removed even if you settled them through a collection agency. If the agency won’t remove the account from your credit report, reach out directly to the credit reporting agencies to see whether it will.
Written by Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
