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How Do I Handle Settled Collection Accounts on My Credit Report?

Dear Experian,

If we have settled our collection accounts, should we put a note on those accounts in the credit report?

- CHS

Dear CHS,

When you settle an account, the creditor (in this case the collection agency) will update the account on your credit report to show it has been settled in full for less than the total balance owed. This indicates that the account is closed and that there is no longer a balance due. Therefore, there is no need for you to add an additional note to the account.

What Happens When I Settle a Collection Account?

When an account is seriously past due, the lender may write off the debt as a loss and then transfer the debt to a collection agency. Once that happens, you no longer owe the debt to the original creditor—you now owe the collection agency instead.

The original account will still appear on your credit report, but it will indicate that it has been closed or transferred to another company and will no longer show an outstanding amount owed. The collection agency may then report the new collection account to your credit history as a separate entry.

Once you settle the account, the collection agency will contact the credit reporting companies and update the account to reflect that it has been settled, but for less than originally agreed. In most cases, your account will reflect the change within a month or two of the collection company receiving your payment.

Should I Accept a Settlement Offer on My Account?

Settling an account is considered negative because it means the debt was not paid as agreed. However, settling an account is better than not paying it at all. And, if you are planning on making a major purchase, such as buying a home, you may be required to either settle or pay in full any outstanding delinquent debts before you can qualify for a loan.

If paying the debt in full is not an option, settling the account for less than what is owed is typically more beneficial than leaving the debt outstanding.

How Long Will a Settled Collection Account Appear on My Credit Report?

A settled collection account may remain on your credit report for seven years from the original delinquency date with the original lender. The original delinquency date is the date the account first became late (and then was never brought current).

While the open date on the collection account will show the date the debt was sold to collections, the amount of time the debt will appear in your credit history will not change. Both the original account and the new collection account will be deleted seven years from that original delinquency date.

Thanks for asking.
Jennifer White, Consumer Education Specialist