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Summary: If you've had a debt go to collections, paying it in full or settling it can keep credit damage to a minimum. Settled debts stay on your credit report for seven years, but there are very limited circumstances where you might be able to remove them. Dealing with debt collectors and creditors is hard, but Solo is here to help.

If you've had a debt go to collections, you already know how much credit damage a single charge-off can cause. You rush to settle the debt or pay it in full, knowing that the alternative could be a debt lawsuit. Once that step is over, you hope that the charged-off account will be removed from your credit report.

While settling the debt is better for your credit than ignoring it, settling doesn't erase the negative mark. You might wonder, "Can you remove a settled account from your credit report?" In most cases, the answer is no. But there are a few strategies you may want to try.

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Settling debt affects your credit in several ways

When you settle a past-due debt, there will be multiple negative marks on your credit report. The late payments will continue to show up for a while. So will the fact that the debt was settled instead of paid in full.

Under the Fair Credit Reporting Act (FCRA), negative marks on your credit report are removed after seven years (15 U.S. Code § 1681c). This means that if you have an account that goes to collections, that information will remain visible to lenders for seven years, even if you pay it in full or settle it.

So why bother to settle the debt or pay it in full if it stays on your account anyway? There are two key reasons:

Settling or paying in full will limit damage to your credit.
It will also allow you to avoid a debt lawsuit.

You might be tempted to just wait out the seven years until the collection account falls off your credit report. However, this is risky because debt collectors and creditors can file lawsuits to recover defaulted debts.

If the owner of the debt files a lawsuit against you and wins, you may have to deal with some unpleasant consequences:

The collector will be allowed to garnish your wages, put a lien on your home or use other extreme measures to collect.
Instead of just owing the debt, you'll also owe court costs and attorney's fees.
Having a debt judgment against you will cause further credit damage.

Federal law places restrictions on the amount of your paycheck that can be garnished (15 U.S. Code § 1673), and many states do, too. However, if you're already struggling with your finances, this is one more thing that can put you in even further distress.

In short, settling debt does cause some credit damage, and it's worse for your credit than paying the debt in full. But it causes far less damage than refusing to pay anything!

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How can you remove a settled account from your credit report?

Generally, settled accounts can't be removed from a credit report until the seven-year period is up. However, there are a few circumstances where removing a settled account may be possible:

If the account has been inaccurately reported.
If you send a goodwill letter and the creditor or debt collector accepts it.
If the creditor or debt collector agrees to a pay-for-delete arrangement.

If the account is truly inaccurate as reported, filing a dispute should lead to a correction. Sending a goodwill letter or asking for a pay-for-delete arrangement is unlikely to work, but if you're serious about trying to remove a settled account from your credit report, it's worth trying.

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Always dispute inaccurate information

If the settled account on your report is inaccurate, you should dispute it with the credit bureaus to have it removed. The procedure for disputes is outlined in 15 U.S. Code § 1681i, which is part of the FCRA.

Fortunately, all three of the credit bureaus make it easy to dispute inaccuracies online:

If you prefer, you may file a dispute by mail. Before you start, you should gather the following information:

Your contact details.
Your credit report confirmation number (if you have one).
The account number for the incorrectly reported account.
Any documents that back up your claim.

The more evidence you have in a dispute, the better. Credit bureaus won't delete a settled account from your credit report just because you say it's inaccurate. They'll need some kind of evidence that supports what you're saying.

To see how this process might work, let's consider an example.

Example: Alex recently had a debt go to collections. To minimize the damage to her credit, she paid the debt in full. When she checks her credit report, she sees that the account was reported as "settled" instead of "paid in full." Alex still has a letter from the debt collector stating the balance of the debt she owed. She also has a receipt confirming that she paid the entire balance. She goes online and files a dispute with each credit bureau, and she attaches the collection letter and the receipt to each one. In a couple of weeks, her credit report is updated to show that the account has been paid in full.

Send a goodwill letter

Occasionally, a debt collector or creditor will remove a negative mark if they understand that there were extenuating circumstances. If you've already settled a debt and are hoping to remove it from your credit report, consider contacting the debt collector or creditor to ask for a goodwill deletion.

When writing to request a goodwill deletion, you might share a little about your financial hardships and explain how you're trying to improve your credit. However, you should know that you're more likely to be granted a goodwill deletion if you pay the debt in full (as opposed to settling it).

Debt collectors and creditors are under no obligation to do goodwill deletions, and many of them don't. But it could still be worth sending a letter.

Request a pay-for-delete

A "pay-for-delete" is something you can request before making a payment. You'll offer to pay the account, and in return, the debt collector or creditor will delete it from your report. Like goodwill deletions, pay-for-deletes are more likely to work if you pay the debt in full than if you settle it.

Pay-for-deletes are far less common than they once were, and they are discouraged by the major credit bureaus. Many, if not most, creditors and large debt collection agencies have policies expressly forbidding them, but you might be successful with a smaller collection agency.

If a collector does agree to a pay-for-delete, you should ask for a copy of the agreement in writing before you make a payment.

Key takeaways: Can you remove a settled account from your credit report?

While you can try to remove a settled account from your credit report, you probably won't succeed unless there are special circumstances. Consider the following strategies:

Disputing the account (if it's truly inaccurate).
Requesting a goodwill deletion.
Asking for a pay-for-delete.

Fortunately, you can still work to improve your financial situation and your credit while you wait for a settled account to come off your report.

FAQ

How long does a settled account stay on a credit report?

Settled accounts stay on your credit report for seven years. The seven-year countdown starts on the date of your first missed payment. Having accurate settlements and other negative items taken off your credit report is notoriously difficult.

Does a settled account hurt your credit?

Unfortunately, yes. If you've settled an account, that means you didn't pay it as agreed, which makes you appear riskier to lenders. Settling a charged-off debt hurts your credit more than paying in full would. However, ignoring the debt is even more damaging to your credit. The debt owner could also sue you and get a judgment.

How can you build credit while waiting for the settled account to come off your credit report?

If you use credit responsibly, the settled account will become less important to lenders. Establish a strong credit history by making all payments on time and in full. If you have other debt, pay it down to lower your credit utilization and boost your score. You should also do your best to avoid having any other debts go to collections.

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Can You Remove a Settled Account From Your Credit Report?