A credit card settlement occurs when your credit card company allows you to pay less than you actually owe to satisfy your outstanding credit card balance. When you settle a debt, that fact will be noted on your credit report.
The Facts
A debt that is settled rather than paid in full will update as "settled" on your credit report. Settled accounts look bad to lenders who pull your credit because they indicate that you may be unable to meet your full financial obligations in the future.
Time Frame
A credit card debt settlement will appear on your report for 7 years if you settled with the original creditor. If you settled with a collection agency after the fact, the settlement will appear for seven years from the day the original account first went 180 days without a payment being made.
Benefits
A debt settlement can help you avoid late payments on a debt. At 35 percent of your credit score, late payment notations have a far greater negative effect on your credit than a credit card settlement.
Disadvantages
Credit card companies are often unwilling to discuss settlement options with consumers who are current on their credit card payments because a good payment history indicates that an individual is not struggling financially.
Considerations
When negotiating a credit card settlement, you can include in the terms of your agreement that your credit card account be updated as "paid" rather than "settled." This prevents any future lenders from being aware of the settlement when they view your credit report.
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