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How to Ensure the Creditor Reports a Settled Debt

How to Ensure the Creditor Reports a Settled Debt

Having debt can be stressful, but settling your debts can provide relief. However, it’s important to make sure the creditor reports the settled debt properly so it doesn’t negatively impact your credit score. This article will explain how settling debt works, how it impacts your credit, and most importantly, how to get the creditor to report it accurately.

What is Settling a Debt?

Settling a debt means paying less than the full balance owed to satisfy the debt. For example, if you owe $10,000 on a credit card, the creditor may agree to accept $6,000 as payment in full. This allows you to resolve the debt for less than you owe.

You can negotiate a settlement yourself or work with a debt settlement company. If you hire a company, they’ll negotiate with the creditors on your behalf. Just be aware some companies charge fees upfront before settling any debts, which is risky.

How Does Settling Debt Affect Your Credit?

Settling debt can negatively impact your credit score, but not as much as not paying at all. Here’s how it affects your credit:

  • The account will be reported as “settled” instead of “paid in full.” This is considered negative.
  • Settled accounts remain on your credit report for 7 years from the date the account first went delinquent.
  • Any late payments you made will still show, hurting your payment history.
  • Settling may lower your credit utilization ratio, which can help your score.

While your score will likely drop when you first settle, it rebounds over time as the negative item ages. Settling debt allows you to resolve debt and avoid further damage from non-payment.

How to Get Creditors to Report Settled Debt Properly

Now that you understand how debt settlement affects your credit, here are tips to ensure the creditor reports it accurately:

1. Get the Settlement Agreement in Writing

Before paying anything, get the settlement offer in writing from the creditor. This agreement should detail:

  • The original debt amount
  • The reduced settlement amount
  • That payment of the settlement amount satisfies the debt in full
  • An agreement to report the debt as settled to the credit bureaus

Having this in writing legally binds the creditor to uphold the terms. Save a copy for your records too.

2. Pay the Settlement Amount as Agreed

It’s crucial to pay the settlement amount by the agreed-upon date. If you don’t, the creditor may revert the account to its past-due status. This can ruin the settlement and further hurt your credit.

To avoid this, only agree to settlement terms you know you can pay on time. Get written confirmation once paid as well.

3. Follow Up to Confirm Reporting

About 30 days after paying the settlement, follow up to verify the creditor reported it properly. Pull your credit reports and review the account status. It should show as “settled” with a balance of $0.

If it doesn’t reflect settled status, contact the creditor right away. Politely remind them of your agreement and request they update the reporting. If they refuse, you can file a complaint with the CFPB or consult a consumer rights attorney.

4. Dispute Inaccurate Reporting

If the account shows any other status besides “settled,” dispute it with the credit bureaus. Draft dispute letters challenging the inaccurate status and have it corrected. The CFPB provides dispute letter templates you can use.

Keep disputing until the creditor corrects it. Under the Fair Credit Reporting Act, they must investigate disputed information and report back within 30-45 days.

5. Negotiate Removal After Settlement Period

Settled accounts typically remain for 7 years from the date of first delinquency. But after this period, you can request the creditor remove it from your report. Send a goodwill letter asking them to delete the settled account as a courtesy.

Be polite and explain how you’ve maintained good credit since settling the debt. They are not obligated to remove it but may agree to as a goodwill gesture.

Other Tips for Managing Settled Debt

Here are some other tips to make the most out of settling your debts:

    • Prioritize settling delinquent accounts first.
    • Don’t settle debt with borrowed money, like credit cards.
    • Avoid debt settlement companies charging upfront fees.

Debt settlement companies that charge fees before settling any debts are risky and often predatory. It’s illegal for debt settlement companies to collect fees before they have negotiated and settled at least one of your debts[1][2]. Reputable companies will not charge any upfront costs. Be wary of companies asking for large upfront fees as they may take your money without providing any worthwhile services.

    • Be proactive communicating with creditors.

Don’t wait for creditors to contact you – be proactive reaching out to them yourself. Call each creditor as soon as you decide to pursue debt settlement and explain your situation. Let them know you intend to settle the debt and want to work with them. Maintaining open communication helps build goodwill and keeps creditors informed[3][4].

    • Get everything in writing when negotiating settlements.

Any settlement offer from a creditor should be received in writing before paying anything. The written agreement should clearly state the settlement amount and that payment of that amount satisfies the debt in full. Having settlements in writing legally binds the creditor and helps ensure the account gets reported properly as “settled” on your credit report[5][6].

Settling debt allows you to resolve financial obligations you can’t pay in full. While it can impact your credit, settling is better than defaulting and gives you a path to becoming debt-free. Just be sure to get settlements in writing, communicate with creditors, and avoid shady companies charging illegal fees.

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