Lauren Smith, WalletHub Staff Writer
@laurenellesmith
“Settled in full” on your credit report means a lender or creditor accepted a lower amount than the outstanding balance and subsequently closed your account. Although you no longer owe the debt, a settled account adversely impacts your credit and remains on your report for up to 7 years from the original delinquency date.
Also, the IRS may consider your settled debt taxable income. If you borrowed money and did not repay it, you essentially received income and must pay taxes on the forgiven amount.
Settling Debt and Your Credit Score
Paying off a debt completely is the best option to protect your credit score. If you do repay a debt in its entirety, the remark on your credit report will read “paid in full.”
However, if this is not possible, settling an account is better for your credit than not paying back the debt at all. In addition, if you do not repay a debt, a collection agency may eventually take legal action against you.
Settling a debt is not ideal, but you can learn how to rebuild your credit and receive personalized credit-improvement tips for free here at WalletHub.
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