When you take out a credit agreement with a lender, such as a mortgage or a loan, it will be marked on your credit file. Each credit account will have a status to let lenders know whether the account has been dealt with, as well as to what degree.
One of the markers that can be added to a credit account is ‘settled’. But what exactly does this mean? And, how does it impact your credit score?
What is a settled credit account?
If you have a settled credit account, it means that you’ve dealt with the debt without defaulting. This could be a credit card account that was fully paid with no outstanding balance or a loan that was repaid in full and on time. In other words, the debt shows a zero balance and you don’t need to take any further action.
It can be a green flag for lenders as it shows that you have no outstanding debt obligations and, more importantly, you have no defaults in your name. If you miss several payments on an account, the lender might close your account and add a default marker to your credit report.
However, if you only miss one payment or you’re able to make up the missed payment within a certain time, the lender might not go as far as to issue a default. In most cases, a default only occurs when you’ve missed two or more payments with no explanation.
In short, a settled credit account is a positive indication that you’ve repaid your debt in full without any problems. This makes your financial situation look better to lenders and, in turn, improves your chances of being approved for credit.
If you’ve tried to settle a debt by offering an amount that is less than the total amount owed, this is known as a full and final settlement. In this case, the account will be marked as ‘partially settled’ and your credit score will be affected as it means you were unable to afford the full amount owed.
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What is the difference between a settled account and a satisfied account?
It can be easy to get confused between a settled credit account and a satisfied credit account, but there are a few key differences you should know about.
For example, a satisfied credit account means that your creditor has issued a default against the debt before it was repaid, while a settled credit account means a debt has been dealt with before a default was issued.
Put simply, the main difference between a settled credit account and a satisfied credit account is the presence of a default.
Though not always the case, lenders might view a settled account as a sign of responsible financial behaviour, while a satisfied account can be a red flag as it means you ignored the debt to the point where the account was closed due to continuous non-payment.
Will a settled credit account negatively affect my credit score?
The short answer is yes.
Even if a debt is settled, it will negatively affect your credit score if it’s still visible on your credit report. This is because, while it’s better than an unpaid debt or a default, it’s still technically a debt.
However, lenders will make up their own minds about whether or not to lend to you. If your financial situation is otherwise unproblematic, they might decide that lending to you is worth the risk as there’s only a small chance that you will fail to repay another credit agreement.
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How long do settled accounts stay on my credit report?
If you have a settled account on your credit report, it will let lenders know no further payment is due.
However, although the debt is settled, it will still be visible on your credit report for six years from the date it was settled.
It’s important to note that the difference in the way a lender views a settled and satisfied credit account is substantial. In most cases, they will be more willing to lend to you if you have a settled account compared to a satisfied account.
Can I dispute a settled account?
If your credit file is showing a settled account that you disagree with, you can dispute it by contacting the credit reference agency directly.
Most major credit bureaus allow you to dispute an account by using an online form, calling them directly, or writing to them. They might require further evidence to back up your claim, which you should provide at the same time as your complaint.
Once the credit reference agency has had time to investigate your complaint and come to a conclusion, it will then update your credit file accordingly. It’s not a guarantee that any incorrect details will be removed, even if it’s unfairly dragging down your credit score.
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How can I improve my credit score after a settled account is removed from my credit file?
If a settled credit account has recently been removed from your credit report, it’s important to take action to start rebuilding your credit history so you can increase your chances of being accepted for credit in the future.
Thankfully, there are various steps you can take to improve your money management skills and improve your credit score:
Register to vote
When you register to vote, your personal details will be added to the electoral roll, which some lenders access to verify that the information you supplied when you applied for credit is accurate and up to date.
In other words, if the details you provide on your credit application match the details held on the electoral roll, lenders can rule out fraud and might be more likely to approve you for credit.
Pay bills on time
Your payment history is arguably the largest contributing factor to your credit score. This means that, the longer you pay your bills in full and on time, the stronger your credit score will be.
So if you have any other financial obligations, such as your rent, utility bills, and phone bill, paying these as they’re due can help show potential lenders that you’re a responsible borrower who is capable of sticking to a regular payment schedule.
Keep your credit utilisation low
Your credit utilisation is the total percentage of your credit limit you’re using. Some lenders use it as an indication of how reliant you are on credit. For example, if your credit utilisation is 90%, some lenders might think you wouldn’t be able to afford life without credit and they might be less likely to lend to you in your current situation.
A credit utilisation of 30% or lower is recommended to qualify for the best deals on most credit products.
Keep old accounts open and active
Another factor that contributes to your credit score is your ability to maintain a payment schedule for a prolonged period. This shows that you’re able to make repayments in full and on time for the length of your loan term.
If you have any old accounts, keeping them open and using them from time to time can contribute towards a better credit score. Even if it’s just a credit card that you use for a couple of small expenses a month, every little helps.
Check for errors
Often, certain information can stay on your credit report for longer than it needs to be or the wrong details can be added in the first place. This can have a negative effect on your credit score and might even make some lenders wary of lending to you.
If you check your credit report and notice something that doesn’t look right, you must raise a dispute with the relevant credit reference agency and provide proof of the mistake as soon as possible. Checking your own credit score will only ever perform a soft credit check, which won’t affect your credit score and will only be visible to you.
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Conclusion
If you repay a credit account without a default being issued, the debt will be marked as being ‘settled’ on your credit report. In the eyes of a lender, this can look better than a satisfied credit account as it means you paid what you owed without any further action being taken.
Even if a credit account has been settled, it will continue to affect your credit score and your ability to obtain credit for up to six years. This is because it’s still a debt that you owed at some point.
If you have any questions about a settled credit account, don’t hesitate to reach out to a money advisor. They should be able to review your financial situation and advise you on the best course of action.
