Credit Advice » Report Advice » Report Details » Paid and Settled Accounts » Settled Account Status More Important Than Who Closed It

Settled Account Status More Important Than Who Closed It

Dear Experian,

How bad does it affect your credit when a creditor reports an account closed by consumer and settled for less then the balance owed?


Dear NIC,

There are two issues in your question. The first is who closed the account. The second is the payment status.

Exactly who requested that the account be closed was important in the past. If the lender closed the account, it was seen as negative because that typically happened only when there was some problem with the account. It wasn’t negative if the consumer closed the account because that usually did not reflect any payment problems.

That has changed in recent years. Today, it doesn’t matter who closed the account. People now open and close accounts so frequently that who closed the account typically isn’t considered by creditors when evaluating lending risk.

Credit scoring systems have been adjusted over time to reflect such changes in consumer behavior and in the credit market. The most important issue is whether the account was always paid on time and as agreed before it was closed.

That brings me to the second issue. Settling an account is quite negative.

This question is being raised frequently of late and I am concerned that collection agencies may be advising consumers to settle and giving them the impression that it makes their credit history positive.

When you settle an account, you negotiate to close the account by paying less than originally agreed. Any time you fail to pay the full amount owed it will reflect negatively in your credit report and in credit scores.

If you settle, it does end the collection activity and lets you start focusing on other debts you may owe, but it doesn’t make the negative history go away.

The most important thing you can do to demonstrate creditworthiness and, therefore, to improve credit scores is to pay all of your bills in full and on time.

Thanks for asking.
The “Ask Experian” team

Review Your Free Experian Credit Report Today

Good credit begins with knowing where your credit is today. Get started with your free Experian Credit Report, updated every 30 days on sign in. No credit card required.

Get Started for Free
Have a Question for Experian?

Your privacy and the information collected here.

Get Your Free Credit Report

View your free Experian Credit Report every 30 days on sign in.

No credit card required.

Get Started for Free

What Should You Know About the Dark Web?

Learn more about what the dark web is, and why it should matter to you as a part of your identity protection strategy.