How to Clear a Settlement

Credit card or debt settlement is a strategy used by some borrowers who are overwhelmed by debt. Debt settlement reduces the total amount outstanding in exchange for the promise that you will repay the account as agreed. Debt settlement is not for everyone, though. It can be costly, ineffective and terrible for your credit. If you already have a settlement on your credit, there are ways to clear it.

Instructions

1

Pull a recent copy of your credit report. Go to AnnualCreditReport.com to get a free copy. This is the government site mandated by the Fair Credit Reporting Act. Look for the account in question and make sure it is reported as settled, not delinquent.

2

Review your settlement agreement. This is different from the terms you agreed to when you initially signed the loan contract. The settlement arrangement usually requires you to make a lump-sum payment and standard payments based on the settled loan amount. Look for the clause in the agreement that describes what happens when the account is paid in full.

3

Pay off the settled account, if it is still outstanding. This must occur before you can try to clear the account from your credit record. Contact the creditor or collection agency handling the account and request a payoff. Make sure to get a paid-in-full letter once the debt is satisfied.

4

Ask the creditor to report the account as "paid," not "settled." Usually a settlement agreement stipulates that an account will reflect "settled," but it certainly doesn't hurt to ask.

5

Draft a goodwill letter. This is a letter that cordially requests the credit bureaus to remove the settled debt or change how it is reported. Include your name, address, Social Security number, account number and creditor name in the letter. Mention positive points on your credit, such as a solid payment history on other accounts, lack of judgments or small balances on high-limit cards. (See Resources for a sample goodwill letter.)

6

Send this letter, along with a copy of the settlement agreement and paid-in-full letter, to all three credit bureaus---TransUnion, Experian and Equifax. (See Resources for mailing addresses.) It is entirely up to the discretion of the credit bureau whether the account is changed.