What is the meaning of Settled or Satisfied on Credit Report?

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What’s the difference between Settled and Satisfied on your Credit Report?

A significant difference exists between these two terms:

  • Settled – This is when you voluntarily close your account by repaying the full amount owed.
  • Satisfied – When you repay the debt in full after the lender closes your account due to default for non-payment.

Both Settled and Satisfied indicate the account is closed and the full amount has been made.

You’d be wise not to confuse the two terms. Although the differences might seem subtle, they don’t mean the same thing and won’t to a prospective lender.

A Settled account sitting on your credit payment history indicates financial management and can positively affect your credit score. However, there can be a sting in the tail if you close too many accounts simultaneously.

The opposite applies to Satisfied accounts, which harm credit scores, making lenders less inclined to loan you.

Read on to get the full info on the implications of a Settled or Satisfied entry on your credit report.

Settled Accounts

What is a Settled Account?

A Settled account is closed with zero balance and no defaults and remains on your credit report for six years.

A settled account is when, for example, you may have finance on a car loan and have made all the monthly repayments on time, without any late payments or missed payments, remained within the credit limit and have no reported defaults (sometimes, lenders can let something like a slightly late payment go unreported).

Alternatively, your mobile contract period ends with no defaults; you switch to a new provider, and the old account is marked as Settled.

Settled accounts are positive for borrowing money, such as car finance deals.

Satisfied Accounts

What must happen for you to get a Satisfied on your Credit History?

When you borrow money or buy an item such as a car on finance and fail to pay, the lender can close the account, issue a Default Notice, or take out a CCJ against you. That is when:

  • The borrower stops being a customer and becomes a Debtor.
  • Creditors will ask the Debtor to pay the full outstanding debt instead of paying the instalments first agreed to.
  • The Debtor might offer to pay in instalments at an affordable rate, but the Creditor may disagree.
  • Details of the account’s outstanding balance remain on your credit report until payment of the balance.

Only when the full amount outstanding is paid in full will the account appear Satisfied on the credit file.

Even when paid, a Satisfied account on your credit report, getting accepted for credit, such as car finance with defaults or missed payments, is challenging.

Credit Reference Agencies are not consistent when using the terms Settled and Satisfied

With three credit reference agencies no prize for guessing they don’t all use the same terms consistently.

While Experian and TransUnion use the terms Satisfied and Settled accounts as discussed above, Equifax is the credit reference agency that does not.

Equifax skips the term Satisfied and uses Settled for both an account closed without defaults and a Defaulted account once fully paid and closed. Why?

How does Satisfied Negatively affect Credit Scores?

When an account goes into default, your credit score can drop like a lead balloon. Long term, how much your score is affected depends on what you do next.

  • Do nothing – it probably is self-explanatory that your credit will dive and remain in bad shape for six years.
  • Partially Satisfy – the account (means you agree with the Creditor a lesser amount than what is owed as full and final payment). Lenders will see you have not repaid the original total, which will likely affect their lending decision. But lenders consider any debt settlement in your credit report more positively than debt non-payments.
  • Satisfied – pay the full outstanding balance. Lenders can see on your credit file you repaid the total amount. As time passes, many lenders will see this default as less of a reason not to lend to you.

Whatever you do, the default drops off your credit history after 6 years.

What is Partially Satisfied on a Credit Report?

As we have already established, a Satisfied mark on your credit rating indicates the debt or money owed in default is paid in full.

However, sometimes a Creditor can agree to the Debtor paying a lesser amount than the total balance owed – known as Partially Satisfied.

When an account is marked Partially Satisfied, it’s the same as for a Satisfied or Settled account, meaning the account is closed, and no further payments are due.

The rules for Partially Satisfied are different for County Court Judgments

You cannot get a Partially Satisfied mark on your credit report for a CCJ.

Although the Creditor may agree to accept a lower settlement amount than the original judgement, from the Court’s perspective, if the defaulted account is not paid in full, the default remains Active on your payment history until the entry drops after 6 years.

When you partially satisfy an account, getting accepted for a loan, such as a car finance with a CCJ, is challenging. You’ll need to satisfy the account for any chance of credit fully.

Why Should You Settle An Account?

Non-payments of debt are bad and affect credit scores, and chances of obtaining credit as lenders consider you a greater risk.

You always want to settle accounts in full when you borrow money. You’ll want to protect your credit score. And the convenience of being able to borrow money can make life easier. Just think you need credit for paying your mobile phone and utility bills for a starter, not to mention bigger things like car finance or a mortgage.

With an outstanding debt on your credit file, you’ll likely pay higher interest rates (APR), and you’re more likely to get declined for credit.

Is Settling an Account Better than not Paying?

Will Settling an Account for less than the original amount affect my credit score?

Settling debt is to agree with your Creditor to pay less than the original amount owed to settle the debt, also known as a partial settlement.

Although a partially settled account is less healthy for your credit history than paying in full, let us assume you’d like to take out a car loan. You’ll likely have higher interest rates with constraints associated with bad credit car finance. However, not paying is more harmful.

Suppose you plan to make a  significant purchase. You may need to settle or pay any outstanding debts in full before qualifying for finance.

If you can’t afford to pay the debt in full, settling the account is likely more beneficial than letting it default.

How long do Satisfied or Settled Debts remain on my Credit File

Debts with a default date remain on credit reports for 6 years. Whether you have paid the debt settlement in full, made a full and final settlement, not paid anything or continue to make payments – None of these matter. The debt disappears from your credit report six years after the default date.

A debt without a default date stays on your record for 6 years from the settlement of the account, either in full or partially.