A reader has asked how Full & Final settlements (F&Fs) would affect her credit rating. The debts were all defaulted and have dropped off her credit record. This article look at how F&Fs are normally shown on a credit record and what would happen for the questioner’s old debts.
A “full and final” settlement happens when the creditors agrees to accept an amount which is less that the total owed to settle a debt, and agrees that the debtor will not be pursued for the remainder. For more details, see Debt Camel’s Guide to Full & Final settlements .
Full and final settlements are partial settlements
F&F settlements do not pay the full amount owing so creditors are will not usually mark the debt as ‘settled’, instead it is almost always marked as partially settled. As part of the negotiation in agreeing a F&F, you can ask for the debt to be shown as settled, but it is rare for a creditor to agree to this.
If the debt has previously defaulted, the term ‘settled’ is not used and the term ‘satisfied’ is used instead. A F&F settlement on a defaulted debt is therefore usually marked as ‘partially satisfied’.
Whether this ‘partially settled/satisfied’ matters to you probably depends on the importance of having a ‘clean’ credit record and the amount the creditor will take for a F&F. So if the creditor will accept say 25p in the £, then the alternative of paying the full amount to get that nice ‘settled’ marker would be very expensive. But if the creditor will not accept less than 90% then you might consider it is worth paying the full amount, especially if you are likely to need a mortgage in the near future.
Old, defaulted debts
A defaulted debt drops off your credit file after 6 years, which is why the questioner is no longer seeing these old debts on her record. But would settling one resurrect the debt? You can see why she wouldn’t want her new, clean credit record to be spoiled by having some partial settlement indicators added to it…
I wasn’t sure what would happen in this situation, so I checked it with James Jones of Experian. He confirmed that after a defaulted debt has gone from a credit record, there are no circumstances in which that debt will re-appear. So the questioner can offer a F&F settlement on these debts and not risk them reappearing and damaging her credit score.
If the defaulted debt is still showing as the default date is less than six years ago, then the partial settlement will show for a while until the default is six years old and the debt drops off. Importantly it will not stay for six years from the settlement date.
Why offer a F&F if the debts have disappeared?
You might wonder why the questioner would bother making Full and Final offers on debts which have disappeared from a credit record. You may want to give top priority to clearing debts which are still showing on your credit report, but when they are cleared there are two reasons why trying to settle old debts should be considered if you can afford it:
- even though a debt isn’t showing on your credit record, it still exists. Unless it is statute-barred (which is not the same as not showing on your credit file) the creditor can still chase you for the money. See Do I still have to pay a debt which isn’t on my credit record? for more details.
- if you apply for a mortgage or a re-mortgage the lender is likely to ask about all your debts, not just check your credit record.
So as defaulted old debts can often be settled for low Full and Final offers, it makes a lot of sense for the questioner to to try to deal with hers.