What does ‘settled’ mean in a credit report?
An account is considered “settled” after a discussion with the lender, where the borrower pays some of the total owed. This typically happens when the lender has agreed to treat the agreement as final settlement of the debt and to accept a partial payment since the borrower is unable to repay the total amount.
While this may seem like a positive outcome, it is a transaction and indicates to future lenders that the borrower has been in financial distress.
Impact on credit score:
- Settlement status reduces your credit score significantly.
- It exists in that report for the maximum of seven years.
- Your reputation is damaged and getting credit in the future will be more difficult.
What does ‘written-off’ mean in a credit report?
When the lender stops trying to collect the loan, usually after several defaults or when a borrower does not respond, it will indicate the account as “written-off.” This is counted as a loss for the lender and is an indication that the borrower is significantly behind on payments.
Can you remove these tags from your credit report?
Technically, above 2 of the statuses can be changed; some lenders may agree to change it to “closed” provided the outstanding balance is fully settled. But they require you to fill out the relevant paperwork and request through the credit bureaus to update your credit report.
What does the expert say?
Sachin Seth, Regional MD, CRIF India/South Asia, explains “When a loan is written off, it means the lender has determined that the loan is no longer recoverable and has removed it from their books as a loss. However, this doesn’t mean the borrower doesn’t have to pay – recovery efforts may still continue. On the other hand, a loan marked as settled indicates that the borrower and lender have reached an agreement to close the loan for an amount less than what was originally due.”
“Both scenarios have a significant negative impact on a borrower’s credit score, as they signal financial stress or default. However, a ‘settled’ status is generally seen as slightly less severe than a complete write-off, since at least part of the dues were repaid,” he added.
In conclusion, both “settled” and “written-off” statuses have negative effects on your credit score; “settled” status is less worse. Both statuses should be viewed as a wake-up call, and borrowers must take affirmative credit action by either paying off a credit account or negotiating a change in status.
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