How Long Do Settled Accounts Stay on a Credit Report?

How Long Does a Settled Account Stay on My Credit Report?

A settled account stays on your credit report for up to seven years from the original delinquency date that led to the settlement.

Example: You lose your job in June and can't afford to keep up payments on a $5,000 credit card balance, so you approach the card issuer for settlement. During the negotiation process, you miss your July and August payments. The issuer agrees to settle for $2,400 in August. The settlement will appear on your credit reports dated from July, the month you first missed a payment.

A debt settlement on your credit report indicates your failure to repay a debt as agreed, so it will raise a red flag for lenders considering your credit applications. Accordingly, a settled account will hurt your credit scores while it appears on your credit reports, but its negative impact will diminish over time—especially if you practice good credit habits going forward.

The Difference Between Debt Settlement and Credit Counseling

While both nonprofit credit counselors and for-profit debt settlement companies can negotiate with creditors on your behalf, there are major differences in their methods and objectives.

Credit Counselors

Nonprofit credit counselors consult with you about your total financial picture and can help you create a budget, prioritize debts and develop strategies for lowering your debt.

If appropriate, they can work with your creditors to devise a debt management plan (DMP), which allows you to repay what you owe in payments smaller than those called for under your original credit contracts. The credit counselor collects a monthly payment from you and pays individual creditors on your behalf until you've paid off what you owe.

A DMP itself won't directly impact your credit scores, but some of its requirements may. Your credit counselor may require you to close those accounts they've put on the DMP, which increases your credit utilization rate (the percentage of available credit you're using on revolving credit like credit cards), reduces your credit mix and can eventually decrease the average age of your credit—all of which can harm your credit scores. On the other hand, making regular, on-time payments on your DMP and reducing your debt over time can improve your credit scores.

Your credit report will typically note you are on a DMP, which creditors may consider as they evaluate applications for new credit.

Credit counselors typically charge for their services, but many offer sliding-scale fees that make their services affordable when finances are tight.

Learn more: How to Find a Good Credit Counselor

Debt Settlement Companies

For-profit debt settlement companies typically advise you to halt all payments to creditors you want to settle with, and instead have you make payments into a special bank account, from which they will offer to make partial repayment to your creditors. It can take months to amass enough cash for a settlement offer, and during that time, missed payments to your creditors will be harming your credit scores.

Creditors may refuse to work with a debt settlement company, and even if they do agree to settle, the settlement company's steep fees could leave you with more debt than you started with.

Tip: By law, debt settlement companies must disclose how much money you need to accumulate in the dedicated account before they'll negotiate with your creditors. If you're considering using a debt settlement company, find out this information and any fees you'll be required to pay first.

If you think debt settlement is the right step for you, remember that you can negotiate debt settlement yourself—without the fees and possibly with less damage to your credit. You can do anything a debt settlement company does yourself, without spending a bundle.

Learn more: How to Negotiate Credit Card Debt Settlement Yourself

How to Improve Your Credit After Debt Settlement

Debt settlement can cause your credit scores to drop, but you can work to rebuild them with some careful attention and diligence.

• Never miss a payment. Payment history is the single largest factor in your credit scores. Going 30 days past due on even one payment can hurt your scores significantly, so make every effort to make your payments on time.
• Become an authorized user. If a friend or family member with good credit is willing to let you become an authorized user of their credit card, your credit scores can benefit from having that card's payment history appear on your credit report.
• Keep credit utilization low. The more of your available credit balances you use, the more your credit scores will tend to suffer. The lower you can keep your credit card balances, the better, and paying balances in full each month is ideal.
• Bring delinquent accounts up to date. If you have delinquencies on your credit report, bringing them up to date can help your credit scores. Paying off collection accounts—if you have any—may help your credit scores as well.
• Consider Experian Boost^®ø. With Experian Boost, you can get credit on your Experian credit report for timely payments of eligible rent, utility, insurance, cellphone and streaming service bills.

The Bottom Line

A settled account is considered a negative event in your credit history, so it will have a negative effect on your credit scores until it expires from your credit report, seven years after the first missed payment that led to settlement. Its effect on your scores will lessen over time. You can track your score recovery by regularly checking your credit report and FICO^® Score^☉ for free from Experian.