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Is Settled Debt on Credit Report?

A debt settlement represents a process through which a creditor agrees to allow a debtor to pay less than the full amount due and owing on a loan or credit card in exchange for a release from the obligation to pay the full amount due and owing. The process of debt settlement involves what legally is known as a partial discharge of at least some of the obligation.

When a person considers the possibility of entering into a debt settlement with a creditor, he or she must examine all of the consequences of that type of resolution. For example, a person needs to understand what impact debt settlement has on a credit report.

Data Submitted to Credit Reporting Agency

As a standard course, a creditor does report a debt settlement to each of the three major credit reporting agencies. The report is submitted in one of two ways: "charged-off settled" or "paid settled."

This type of notation in a credit report does have a negative impact on a person's credit score. In addition, the advisory on a credit report will stay on a debtor's record for seven years, as a general rule.

Over time, the impact on a person's credit score does lessen. Nonetheless, prospective lenders will be able to see the actual notation or advisement on a credit report regarding the manner in which a prior debt obligation was deal with by a debtor.

Keep in mind that a creditor does not enter into a debt settlement until an account is past due, typically by a number of months (at least three or four months). Therefore, in advance of a debt settlement, a loan or credit card already has had a negative impact on a credit report.

Credit Reporting Option by Creditor

In some cases, as a means of enticing a debtor to settle a debt, a creditor is willing to negotiate the terms and conditions of a debt settlement. Sometimes a creditor comes to a realization that getting some money promptly from a debtor is far better than running the risk of getting a but more money from that individual paid out over the long term.

One option that some debtors are willing to consider is a debt settlement in an agreed to amount with a report to the credit reporting agencies that the debt has been paid in full, despite the compromise of the actual amount.