Can You Get a Creditor to Report a Settled Debt As Paid in Full?

Owing money to a creditor and then defaulting on the bill can trigger a collection account or a charge-off on your credit report. Both items harm your score, but settling the debt with your creditor can help repair damage. And, if you're fortunate, the creditor may report the debt as "paid in full."

What Is a Settlement?

A debt settlement involves paying an old debt that's owed to a creditor. But instead of giving creditors the full amount, you negotiate paying a percentage or less than what you owe. Creditors often agree to debt settlements because something is better than nothing. Creditors can either accept your settlement offer or risk never recovering funds owed to them.

Settlements and Credit Scores

After negotiating a settlement offer and receiving your payment, creditors tend to update credit reports. They'll include an entry next to the previously delinquent account that reads, "settled," or "settled for less than balance owed." While taking the initiative to pay an old debt shows a measure of responsibility, settling a debt looks bad on your credit report, and this move can turn off future lenders. For this reason, you should negotiate with creditors and ask them to report the debt as "paid in full," or "paid as agreed."

Negotiating With Creditors

Creditors aren't obligated to update your credit report with "paid," "paid as agreed," or "paid in full." But this shouldn't stop you from negotiating with them. Before sending a payment to settle your past due debts, talk with creditors directly and inquire as to how they will report the account upon receipt of your payment. As part of the negotiating, offer to settle the debt only if they will report the balance as "paid," or "paid in full." Creditors may comply to recover funds.

Get Agreements in Writing

To alleviate creditors from not upholding their end of the bargain, get all settlement offers in writing, which protects you if the creditor decides to send your account to collection or files a lawsuit to recover the balance. Also, maintain copies of canceled checks as proof of payment. If the creditor agrees to report the settled account as "paid in full," get this agreement in writing as well.