When looking at the different accounts listed on your credit report, it’s important to know the difference in meaning between a settled and satisfied account. While both terms mean the account has been closed and the full amount paid, a settled account is one that has been closed as the full amount owed has been paid. In contrast, a satisfied account is one that has gone into default due to missed payments but has since been repaid in full.
Although the difference between settled and satisfied might look subtle, lenders might look more critically.
If you have a settled account on your credit report, it shows that you’ve managed your debts well in the past and made all your payments on time. It could even improve your credit score.
A satisfied account, on the other hand, proves that you’ve had trouble making payments in the past. This can negatively impact your credit score and make lenders more reluctant to offer you a new loan.
What is a settled account?
A settled account is closed when the balance reaches zero without any defaults. It typically stays on your credit report for six years.
Let’s look at one scenario; imagine you have a type of car finance agreement like Hire Purchase (HP) or Personal Contract Purchase (PCP). You make all your monthly payments on time and never miss a payment or pay late. Once your loan term ends, your account will become settled.
Having a settled account on your credit report could improve your credit score and make it easier for you to find finance again in the future.
What must happen for a satisfied account to appear on your credit report?
Life happens. When you have a loan or car finance agreement, you might have the best intentions, but then something happens, and you fall behind with your repayments. Depending on how many payments you miss, the lender could close your account, issue you with a default notice, or apply for a County Court Judgement (CCJ) against you.
In that case, you’ll stop being a borrower and become a debtor. Your lender will typically ask you to pay off all your outstanding debt rather than letting you keep your existing repayment plan (you might be able to negotiate a new payment plan but that’s not guaranteed). Your defaulted loan will stay on your credit report until you’ve paid the full balance when it will be marked as satisfied.
Unfortunately, having a satisfied account on your credit report can negatively impact your credit score and make it harder for you to qualify for a new loan.
Do all credit reference agencies use the terms satisfied and settled?
The short answer? No, the three credit reference agencies don’t all use these terms or use them consistently.
Experian and TransUnion do use the terms satisfied and settled, but Equifax doesn’t. Instead, it uses the term Settled to describe both an account that’s been closed without defaults and one that was defaulted but has now been fully paid off.
Will having a satisfied account affect my credit score?
Your credit score is a three-digit number that reflects how you act as a lender. So, it probably won’t surprise you to learn that missing payments – or making them late – will likely make your score drop.
The good news is that it doesn’t have to stay that way, you can choose to:
- Do nothing
You don’t have to act but your credit score can be affected for up to six years.
- Partially satisfy
This is when you negotiate with the lender to make a payment that’s lower than your full outstanding loan balance. This will also be marked on your credit score and could limit your ability to get a new loan in the future.
- Satisfied
You can pay off the outstanding balance and make the loan satisfied. While lenders will understand that you did default on the loan, they’ll also be able to see that you did eventually pay the full amount.
No matter what you choose to do, your default will drop off your credit history after six years.
What does partially satisfied mean on a credit report?
A partially satisfied account indicates that you’ve negotiated with your lender and agreed to pay a lower amount than the full outstanding balance.
This means that your account has been closed and no further payments are due, but lenders will be able to see that you defaulted on your original loan and couldn’t afford to repay the full balance.
Can I have a partially satisfied account if I have a CCJ?
You can’t get a partially satisfied mark on your credit report with a CCJ. While the lender might agree to accept a lower settlement figure than your original judgement, the court will still consider your account in default if it is not paid in full. Your default will remain on your credit report for up to six years.
Should I settle an account?
A lender will only accept the risk of offering you a loan if they know they have a reasonable chance of getting their money back.
If you fall behind – or miss payments completely – lenders will understandably be wary of you and your credit score will take a hit as well.
You should always aim to settle your accounts in full to protect your credit score. That’s the best way to ensure you can qualify for other types of finance in the future, whether that’s a credit card, mobile phone contract, mortgage, or car finance loan.
Is a partial settlement better than failing to pay?
When you agree a partial settlement, you’ll be making a deal with your lender to pay back an amount that’s less than your original loan.
While this option isn’t as good for your credit score as settling the account in full, it can be less harmful than a default.
How long will a satisfied or settled account stay on my credit report?
A debt with a default date will stay on your credit report for up to six years. Whether you’ve paid the debt in full, made a full and final settlement, or continue to make your monthly payments, it doesn’t matter. Your debt will fall off your credit report six years after the default date.
A debt without a default date will also stay on your credit report for six years from the date the account was settled, no matter whether that was in full or partially.