It’s time to take back your credit! If you have a settled account on your credit report, you need to remove it as soon as possible. Settled accounts can be charged off, paid, or even in default and they are not removed from your credit report until the creditor removes them.
In this full guide, we will show you how easy it is to remove a settled account from your credit report and rebuild your score so that you can qualify for more loans and other types of financing in the future.
While I cannot guarantee success, there are a few options that you can pursue to either have your account removed or transferred to a non-settled account. However, even if this proves challenging, settlement accounts typically drop off with time. I will list the best practices for rebuilding your credit from settling and getting back on track again as quickly as possible.
What is a settled account?
When a lender accepts a lower payment amount than the full balance owed on a debt, the account is settled.
Types of accounts that can be settled include:
- Credit cards
- Loans, including student loans
- Medical bills
If you agree to pay any disputed charges for a lower amount, that is also considered a settled account.
Once you’ve settled an account, you can no longer use it. This is because in order to settle, you will need to agree to close the account. For example, if you settle a credit card account, the lender will close your account and you won’t be able to use it in the future.
Settled accounts can affect your credit score and give you bad credit, particularly if you settle them yourself without following proper procedures. Accounts stay on your report for 7 years, so it’s important to settle them correctly.
If you can’t afford to make your bill payments in full, it is a better idea to pay off the amount that you owe at discount rather than rack up even more debt. For student loan accounts, you will need to default on your account before you are able to settle.
Settling an account can be beneficial because it will remove the delinquency or collection from your credit history and you’ll pay less than you initially owed on the debt.
Settled accounts: how they affect credit
Credit accounts that have been settled can be detrimental to your credit score if they are not handled correctly. Most people and lenders will only settle delinquent accounts, which means they have late payments (delinquencies) on the account and have been sent to a collection agency.
How settled accounts affect credit score
Credit bureaus like Equifax, Experian, and TransUnion calculate your credit score or FICO® Score based on your credit history. Having any delinquencies on your credit report can seriously hinder your ability to get new credit., buy a home, get a car loan, rent an apartment, or set up utilities.
Settled accounts will ruin your credit score. A settled account is like having a delinquent status to lenders and bureaus because you failed to pay the agreed upon amount on time.
Settled accounts will lower your credit score as long as they’re in your credit history, which can last up to 7 years.
Settling an account will also close that account, which reduces available credit. Credit utilization is one of the factors in your credit score.
Your credit score may not increase at all when you pay off accounts in collections because you will still have late payments on your report. Your payment history is worth 35% of your credit score, so it’s essential to make timely payments.
A settled account affects your credit report negatively if the creditor does not agree to remove the negative information after you pay the account. If you have a pay for delete agreement with this creditor, it won’t affect your credit once you follow through and pay what is owed.
How settled accounts affect credit history
Despite the term “closed,” settled accounts are still reported on your credit report. They’re just indicated as “Settled” instead of a delinquent past-due payment, which can make lenders doubt your reliability
Late payments and settled accounts are part of your payment history, which make up 35% of your credit score.
In some cases, settling your debt with a creditor may be the best option, even if it appears in your credit history as a settled account and not a charge-off.
Creditors resort to a charge-off when borrowers’ accounts are sent to debt collection agencies, and those accounts are unpaid for an extended period. Usually, charge-offs happen around the 6-month mark (180 days).
At this point, creditors take legal action by sending your account to collections. A collection agency is employed by the creditor in order to recover the money owed for unpaid bills.
We have helped clients settle accounts with the Department of Education and lenders like Navient, SoFi, and others.
How to remove a settled student loan account
Getting rid of old debts from your credit history is hard to do without clear direction, but there are a few things you can do that will make the process easier.
The first things to do when trying to remove a settled student loan from your credit report are:
Get your free credit report
Dispute any inaccurate information
When these steps are complete, choose one of the following that best suits your situation:
- Send a goodwill letter
- Pay to delete
- Wait it out
- Get your free credit report
Thanks to the Fair Credit Reporting Act, you’re entitled to receive free copies of your credit history from all three major credit reporting agencies at AnnualCreditReport.com. Get your free credit report and check the information for errors pertaining to your accounts.
Double-check any delinquent accounts to ensure that the amount owed and date you stopped making payments are accurate.
If creditors report you as delinquent early, that can negatively impact your credit score.
You can also monitor all your credit accounts using FICO Advanced — Get 3-Bureau Credit Reports and FICO Scores
Dispute any inaccurate information
If you find any inaccurate information on your credit report, submit a dispute letter to the bureau (credit company) that has an incorrect entry. Include in the letter all details that needs correcting and request for it to be done immediately.
Don’t assume that your credit report is always correct — review it annually. Then, remember to act if you see an error because no one else will.
Send a goodwill letter
If everything on your credit report is accurate, send a goodwill letter.
Along with close monitoring of your credit, a goodwill letter is an effective way to request the removal of negative items. If you’ve been a good borrower other than the account in question, it’s worth trying one.
Pay to delete
You can settle your outstanding balance and have it removed from your credit report if the creditor agrees to this. Many credit repair or debt settlement companies specialize in settling accounts.
If you agree to settle a collection account for less than the full amount owed, be sure to get your creditor’s agreement in writing before sending any payment. You should always have an agreement to pay a negative account in exchange for deleting the information from your credit report.
If you do not receive a letter and send payment right away, credit issuers or collection agencies have no incentive to delete the delinquency off your account.
Note: Student loan holders (both federal and private) typically won’t agree to delete negative information from your credit report when you negotiate a settlement.
Wait it out
Accounts sent to collections and defaults are typically only on your credit report for 7 years, and bankruptcies affect your credit score for 10 years. If it’s been several years since you became delinquent, perhaps it may be worth waiting until they disappear from your history.
Can settled accounts be removed?
Now, you may be wondering about settled accounts and how they affect your credit. But the first thing to know is that certain account types can never be deleted from a report.
Paying off a settled account without a pay-to-delete letter. (Your lender has no incentive to delete the settlement from your credit history.)
Your lender has no incentive to remove the account. Legally, your lender doesn’t have to remove the account unless they’ve signed a letter saying otherwise.
You haven’t paid off the settled amount. If you haven’t given the lender or collections agency the reduced amount you agreed to pay, they won’t take the settled account off your credit report.
How long do settled accounts stay on credit reports?
If you stop paying your student loans, here are the consequences and how long they will affect your credit:
Day 1: You miss your student loan payment.
Day 30: Your student loan servicer can start charging you late fees.
Day 90: Your lender will start reporting your student loan accounts overdue to the credit bureaus. Some private loans go into default when they reach this status, depending on terms determined by the lender.
Day 270: Your federal student loan is likely to go into default. Once in default, your servicer may demand immediate payment for the total balance due or even garnish your income and withhold your tax return until you repay the debt. The longer you stay in default, the more serious these consequences will be.
Settled accounts remain on credit reports for 7 years, assuming you do not negotiate to have them removed.
If you’ve negotiated a “pay-to-delete” agreement with your creditors, they should remove the settlement from your accounts once they report these changes to the credit bureaus. If it’s been a few months since you’ve paid off that debt, contact them and ask them to delete the account if necessary.
As time goes by, delinquencies and settled accounts affect your credit score less and less. Eventually, after 7 years, they’ll drop off your credit report entirely.
How long do settled accounts stay on credit reports? Accounts that have been settled will typically stay on your credit report for 7 years unless you remove them with a pay-to-delete agreement.
Rebuilding your credit starts today: 5 tips
After you’ve settled your accounts in collections. How do you rebuild your credit so you can get reasonable interest rates and qualify for loans?
Here are the 5 best ways to rebuild your credit after settling an account:
Make a responsible decision if you are going to borrow money. If you have paid off your debts, then the worst thing you can do is accumulate more debt. You can borrow small amounts in order to rebuild your credit history, but only use what you can afford and pay it back quickly.
To improve your credit score, make sure you pay all of your bills on time. Late payments will stay on your credit report for 7 years, whether they are student loans or missed car payments. Rebuild your credit by making sure you make timely monthly payments. You may also want to consolidate any other outstanding student loans so that you only have one payment.
Keep track of your credit report for free once a year. Check it over to look out for incorrect information and ask that it be fixed when necessary.
Pay off credit cards and loans that are close to maxing out. A portion of your credit score is based on how much of the available credit you’re using. If you have a card with a limit near its maximum, pay it down so it will be easier for you to build back up from now on.
Adding yourself as an authorized user to a credit card account with on-time payments can boost your credit score.
Rebuilding your credit will be challenging, but it’s worth the effort. Saving on car loans and mortgages seems like a distant dream without a good credit score because these rates depend on your credit history.
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