Does a Settlement Clear Off Your Credit Report

Settlements look bad on your credit reports. The Experian credit bureau warns that they are negative even though they show you negotiated a satisfactory repayment with a creditor or paid off an old bill. Eventually, settlements drop off your Experian, TransUnion and Equifax reports, and sometimes you can hasten the process or even get them converted to neutral or positive information.

Definition

A settlement is an agreement with a creditor or collection agency, which agrees to accept a certain amount of money as payment in full for a bill even though it is less than the original amount. The past due bill, charge-off or debt collection account on your Experian, TransUnion and Equifax credit reports changes to reflect this event when you pay the agreed-upon money to the creditor.

Time Frame

Settlements fall into the same category as most other negative credit report data, getting cleared away automatically after seven years. You may dispute a settlement if you find it on your credit reports after that reporting time. The Federal Trade Commission explains that annualcreditreport.com gives free annual reports if you wish to ensure that old data has been erased.

Prevention

Prevent credit score problems by negotiating removal of a settlement from your credit reports before making the payment, Bankrate.com writer Steve Bucci advises. Lenders and debt collectors primarily want to get money from you, and it costs them nothing to stop reporting certain information to the credit bureaus. Ask for your account to reflect "paid as agreed" status, which is good for your credit score, or to be removed completely in exchange for your payment. Never send money until you get a written commitment to those terms. Order your Experian, TransUnion and Equifax reports through annualcreditreport.com a month or two after settling the account to be sure it is cleared from your records or changed to a positive entry.

Warning

Never agree to a settlement with a debt collector who is pursuing a bill that is beyond your state statute of limitations. Every state specifies a certain number of years during which creditors and collection agencies can sue you for a bill. They lose their power to legally force payment when that time expires, although the NOLO legal website warns that buyers of old debt try to trick you into settling. Do not acknowledge the bill, and never send money or make a settlement agreement or you might restart the statute.