What If a Settled Account Still Shows a Balance?

Last Updated:
April 4, 2023

If you have one or more outstanding debts, your creditors might be willing to settle those debts if you pay them what you can afford right now. Settling accounts in this way can help you get your finances back on track, but it still shows up on your credit report.

If a settled account still shows a balance, you need to know what to do and how to fix the issue ASAP. Settled accounts that still show balances can negatively impact your credit score more than they should. Let’s take a closer look.

What’s a Settled Account?

A settled account is a debt account that's been closed or "settled" for less than the total amount you owe. Say that you take out a car loan for $10,000, but because of a combination of an accident, medical bill, and other financial misfortune, you can't pay back the loan total.

You can pay back $8000, however, and mention this to your creditor after several months of trying to make ends meet and failing to make your loan payments. The original car lender agrees to accept $8000 for the loan since it allows them to partially recoup their investment. It's more cost-effective for them to cut their losses than to continue to pursue you for the remaining amount.

Once the creditor receives the $8000, they settle the account. The debt account then gets marked as “settled” on your credit report. This is a distinct marker from closed or charged-off. A settled account means you didn’t pay back the loan or debt in its entirety, but the creditor is not pursuing you for the remainder of what you owe.

You can then focus on paying back your other debts or rebuilding your finances without having to worry about that specific bill continuing to follow you.

Is a Settled Account the Same as an Outstanding Debt?

No. A settled account doesn’t have any remaining outstanding debt (if reported correctly). You don’t have to worry about or think about the settled account anymore.

Outstanding debt is any debt that you still owe and are expected to repay, at least in the eyes of your lender/creditor. For example, if you have a business loan for $20,000 and it’s still outstanding, you should continue to repay that loan until it is paid off or until it is settled/charged-off. Otherwise, each missed or late payment will degrade your credit score.

What Effect Does a Settled Account Have on Your Credit Score?

A settled account has a net negative effect on your credit score, though this effect is less negative than the effect of outstanding debt you can't repay. That's why it's wise to try to settle debt accounts if possible (and if you know that you won't be able to pay back those accounts on time).

Your credit score will take less damage and decrease by fewer points with a settled account on its record as opposed to an outstanding debt continuing to accumulate. If you have to choose between a settled account and an outstanding debt account that you can't repay, the former is always better than the latter.

Of course, it’s always better to repay any debts you have in full! Do that, and your credit score won’t have any negative effects whatsoever, provided you make those payments on time.

How Long Does a Settled Account Stay on Your Credit Report?

A settled account normally stays on your credit report for seven years after the original delinquency date. The delinquency date is the first day on which the debt was officially late or you missed a payment.

Let’s return to the car loan of $10,000 for an example. If your payment for that loan was due on May 1, but you missed that payment, the delinquency date is May 1. Then, if your debt account is settled, it will stay on your credit report until May 1 seven years in the future.

Once a settled account reaches seven years of age, it disappears and no longer has any effect on your credit report. In this way, it’s similar to most bankruptcies, which also usually disappear after seven years.

What if a Settled Account Shows a Balance?

Simply getting confirmation from a creditor that they have settled your account isn't enough. You should check your credit report to make sure that the debt account has actually been settled and isn't continuing to damage your credit score each month.

A normal settled account should have a balance of $0. If you look at your credit report and find that a settled account still shows a balance, the credit bureaus consider the debt to be outstanding.

Why is This Worrisome?

Since an outstanding debt is more damaging to your credit score than a settled debt, this is always a bad thing. If a settled account still shows a balance, it means your credit score will be more negatively affected than it should be, reducing your credit score and limiting your financial options.

It’s in your best interest to get the settled account corrected so its balance accurately shows “$0”.

Why Would a Settled Account Still Show a Balance?

Credit report errors are very common. Credit furnishers, which are any organizations that provide information to credit bureaus, include lenders, utility companies, and businesses. From time to time, any of these organizations may make mistakes.

For instance, a car lender might tell you that your account has been settled, but fail to report this information to the credit bureaus. Then, the credit bureaus continue to mark the account as outstanding, thinking that you still owe the car lender monthly payments and aren’t making them (since the car lender doesn’t report you making any payments, after all).

Alternatively, the credit bureaus may have made a mistake. For instance, they may receive a notice from a lender that your debt account has been settled, but not update their records.

Simple mistakes are usually the reasons why settled accounts still show balances. However, it's also possible that disgruntled lenders may deliberately not report the fact that they've settled a borrower's account to the credit bureaus as a form of punishment.

How to Fix a Settled Account that Still Shows a Balance

There are two ways to try to fix a settled account that still shows a balance:

  • First, file a credit dispute letter with the three credit bureaus (or any of them that report the settled account incorrectly).

Explain your situation, the fact that the account was settled with the lender or credit furniture, and supply proof of this in the form of a letter or email from the lender saying that they will settle the account. In a few weeks, the credit bureau(s) should adjust their records

  • Secondly, send a letter to the credit furniture or lender stating that the account still shows up as open or delinquent on your credit report.

If the error was on the lender’s part, they should contact the credit bureau to resolve the matter and correct their error. If they don’t, you may have grounds for a legal action

Wrap Up

If a settled account still shows a balance, you need to correct that quickly to prevent your credit score from reducing or decreasing. You can fix this by contacting the credit bureaus or the credit furnishers that provided the account and explaining the situation with a dispute letter. In a matter of weeks, the settled account should have a balance of $0 and your credit score will no longer be as negatively affected.

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