Paid in Full vs. Settled on Your Credit Report

Paid in full and settled can mean different things on a credit report. Learn how paid in full vs settled debts may affect credit scores.
a man manages his finances from his laptop
Written by:
Rebecca Lake
Edited by:
Kristin Marino verified

When you have student loans, car loans, medical bills, credit cards, or other debts to repay, you may be wondering whether settling the balances is worth it.

Debt settlement allows you to pay less than what’s owed on a debt. In exchange, your creditor agrees to forgive the rest. While that could save you some money and relieve you of a financial burden, it’s important to understand what it could mean for your credit report. Specifically, that means defining what paid in full vs. settled means for your credit report.

What Is Paid in Full?

When an account is listed as “paid in full” on a credit report it means that the entire amount owed, including the principal and interest, has been paid off. It doesn’t necessarily mean that every payment to the account was made on time. But it does mean that there is now a zero balance owing.

Paid-in full status can be applied to different types of installment loans. For example, say you take out a $15,000 personal loan. If you make every payment from start to finish, according to the terms of your loan agreement, your lender would mark the account as paid in full once the debt is satisfied. At this point, the account is closed and you owe nothing else to the lender.

Revolving debts, such as credit cards, may be marked as “closed” or “paid as agreed” on a credit report, rather than paid in full. That’s because it’s possible to close a credit card account while still owing a balance to the credit card company. You’d still be responsible for paying the balance due, according to the terms of your card agreement.

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What Is Settled in Full?

Settled in full means that you and your creditor have agreed to a debt settlement in which you pay less than what’s owed. In return, the creditor agrees to forgive the remaining balance.

So, let’s revisit the $15,000 personal loan from the previous example. Say that with $5,000 left to go on the loan, you lose your job and can no longer make your monthly payments. Late payments start piling up so you reach out to the lender to ask if they’d be willing to agree to accept $3,000 to finalize the debt.

If the lender agrees, you’ll pay them the $3,000. Meanwhile, the $2,000 difference is forgiven. The account is closed and reported to the credit bureaus as settled in full.

How debt settlement works

Debt settlement works by allowing consumers to pay less than what’s owed to close out loans and credit accounts. There are two ways to pursue debt settlement:

  • Negotiate with your creditors directly (i.e. DIY debt settlement)
  • Work with a debt settlement or credit repair company

Between the two, negotiating settlements with creditors directly could save you more money. You may be able to talk to your creditors and explain your financial situation in order to reach a settlement agreement that’s acceptable to both of you.

Debt settlement and credit repair companies can spare you the trouble of having to negotiate with your creditors since they do the hard work for you. But you could pay a sizable fee for their services.

What debts can be settled?

Debts that can be marked as settled in full are usually unsecured. That’s because, with something like a car loan, mortgage loan, or business equipment loan, the loan is secured by collateral. If you were to default on a car loan, for example, the lender could repossess the vehicle. In the case of mortgage default, the lender can foreclose.

Credit cards can also be settled if your creditor is willing to consider it. Keep in mind that credit card companies and loan lenders can pursue other options, including a debt lawsuit, to recover the money that you owe.

Paid in Full vs. Settled and Credit Scores

Between the two, it’s always better for your credit scores to have debts listed as paid in full on a credit report. Even if you have one or two late payments for the account on your credit history, paid in full sends the signal to lenders that you follow through when it comes to paying back what you borrow.

A debt that’s listed as settled in full could be a red flag for lenders. They may question why you chose to settle the debt rather than repaying what was owed in full. Additionally, debt settlement typically requires that you be significantly behind on payments.

A string of late or missed payments, coupled with an account listed as settled in full, could cost you substantial credit score points. Negative items, including debt settlements, can remain on your credit reports for up to seven years. While the negative impact fades with time, you may still have to explain past debt settlements if you’re taking out a loan in the future. For instance, you may have to provide a written explanation for an account that’s listed as settled in full if you’re applying for a mortgage.

What to Do If You’re Struggling With Debt

The worst thing you can do when you’re having trouble managing loan or credit card payments is to do nothing. If you don’t make any payments toward your debts, you could end up in default which can be damaging to your credit scores. As mentioned, your creditors may also decide to sue you to try to get you to pay.

Debt settlement is one option for dealing with outstanding debt. But there are other possibilities you might consider, including:

  • Applying for a credit card or loan hardship program
  • Renegotiating the terms of your loan
  • Consolidating or refinancing debts to make payments more manageable
  • Entering into a deferment or forbearance period if you owe student loan debt

You could also consider talking to a nonprofit credit counselor. They can evaluate your financial situation and debt to help you come up with a plan for managing what you owe while doing as little damage to your credit as possible.