A reader has asked how Full & Final settlements (F&Fs) would affect her credit rating which is currently looking good as her debts were all defaulted and have dropped off her credit record.
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 this Guide to Full & Final settlements.
This article looks at how F&Fs are shown on a credit record in the two different situations:
- where the debts are still showing on your credit record, and
- where the debts have already disappeared.
Some different names for this
F&F settlements are often called partial settlements, because you don’t pay the full amount, only part of it.
Creditors usually mark the debt as partially settled on your credit record rather than settled.
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 then marked as partially satisfied. I talk here about settled debts because that is is how creditors normally talk to you, even though the credit record term is normally satisfied.
Debts that still show on your credit record
When you settle debt, partially or in full, the balance is set to zero. The debt will then disappear from your credit record six years after the original default date.
If the debt hasn’t been defaulted, it will disappear six years after the settlement date. But it is unusual for a creditor to accept a F&F unless a debt has been defaulted. You may want to ask for a default to be added, see What should the default date for a debt be? for more about this.
It is common for a creditor to tell you that the debt will stay for six years from the settlement date. This isn’t right if there is a default date on the record. It will drop off six years from the default date whatever you do.
How does a partial settlement affect your credit rating?
Your credit score is a complicated calculation looking at lots of different factors – but a partial settlement marker isn’t usually one of them at all, as James Jones from Experian explains. But lenders may make additional checks before deciding whether to give you credit. This is more likely for larger credit applications – mortgage or car finance say.
Some lenders may not care if you have partially settled a debt. And some lenders will reject you even if you have fully settled the debt. So it can be hard to decide if paying the extra money is worth it.
Think about the size of the discount you can get and how long the debt will stay on your credit record. For example:
- if the creditor will accept £500 to settle a £1,500 debt that is a big discount. And if the debt will drop off in the next year, it’s probably a good idea to grab it!
- if the creditors will only accept £1,300 to settle that £1,500 and the debt is still going to show for another four years, you may think it’s worth paying more to get the debt marked as fully settled.
The rest of your financial position also matters:
- with lots of problems on your credit record, getting one debt marked as partially or fully settled probably won’t make much difference at all;
- if you can’t afford to repay all your problem debts, it’s usually better to settle as many as possible partially, rather than take longer to repay them in full.
Wanting a mortgage is the most difficult situation – I look at it in detail in Will partial settlement make getting a mortgage harder?
Debts that have disappeared from your credit record
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 bring back the debt? You can see why she wouldn’t want her new, clean credit record spoiled by having some partial settlement indicators added to it…
The answer is simple – after a defaulted debt has gone from a credit record, it will never re-appear. You can offer a F&F settlement on these debts and not risk them coming back and damaging your credit score. If a creditor tells you that a partial settlement will be shown on your credit record for another six years, they are wrong.
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. There are two reasons why trying to settle old debts is a good idea:
- a debt that isn’t showing on your credit record still exists. Unless it is statute-barred 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 try to deal with hers.
This article was originally published in 2014. It has been updated with new examples and links.
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Sandie says
Hello, just need some help on the following, we currently have debts that are in a DMP company and we have recently gone direct to the companies involved who have our debts. We wrote to cabot asking for F&F on about 6 accounts some they have discounted some they haven’t.
I have been told the ones they haven’t reduced is because there was a ‘pre default’ on the account before they took over but there has been none since and we have been paying now for approximately 8years. Trying to get ourselves sorted and now we will not be able to do so :0(
Is it common practise that these companies do not reduce debts because of this reason?
Thank you.
Sara (Debt Camel) says
can you give some details about the original debts – what type of debt, who from, when did the account start?
do these debts show on your credit record?
Sandie says
The original debts came from various credit cards/loans we now pay a monthly amount to Cabot through a debt agency. An arrangement does show on my husbands credit report from Cabot but they only put it on there in the last 6months which is odd as we have been paying them for years! The debts started 8 years ago. Thank you
Pam says
Hi,
I have a default on my account by shop direct for £2961, but the default balance is £1984. This was added on 26/6/2013.
This debt goes back to 2006, but I only checked my credit record last year and I have found a letter with default date back to 2012.
Iv requested a signed credit agreement several times, but nothing was found and in 2013 lowells contacted me to say the account had been passed back to shopdirect and closed cause no signed credit agreement was located.
I have been reading on internet (legalbeadles) that people have been taken to court , even with no signed credit agreement and lost and received a ccj, I don’t want this to happen .
Should I contact them regarding full and final settlement and if so how much should I offer. I’m having sleepless nights over this.
I definitely can’t afford the full amount , but if I have some idea off what to offer I can try and raise that amount. And what amount do I work on, the debt amount £2961 or the default amount £1984. I really need closure in this as I’m going through a difficult break up and these arrears are stressing me out.
And also what do I put in the letter so they can’t come back to me in future?
Sara (Debt Camel) says
If they couldn’t find the paperwork for the account in 2013, I don’t think you have anything to worry about. You could call National Debtline 0808 808 4000 to confirm this. I don’t know what Legal Beagles case you are referring to but no CCA agreement is an excellent defence. Also the fact it has gone quiet for 4 years means the creditor doesn’t think they would win either.
Pam says
Iv phoned national debt line and they said don’t worry, but it’s just stressing me out so much . The default letter I have is for Jan 2012 and they added a new default in July 2013, so this is about 1 1/2 years extra I have to wait to get it off credit file . I just thought if I off F&F and request they go back to date Jan 2012 my credit file will be sorted by Jan next year.
Sara (Debt Camel) says
Well it’s your decision if you want to offer a f&F settlement – but you absolutely shouldn’t be thinking of borrowing the money to do this.
If you really want to do this , I would suggest making it a VERY low one as this debt appears to be unenforceable. I would be thinking £100. Point out in your letter that they are unable to produce the CCA documentation so the debt is unenforceable. And say your offer is conditional on them agreeing to correct the default date to Jan 12 as per the letter you have, attach a copy of it.
Kfe says
Sorry if this doesn’t follow the thread
I have just over £6000 in debt, it is now past the 6 yrs…i am near to retirement and want this to be over… what should I do
Sara (Debt Camel) says
Do you think the debt is statute barred? See https://debtcamel.co.uk/statute-barred-debt/.
Pam says
Hi not sure if you mean me Sara , my debt isn’t statue barred. I paid a reduced instalment back in 2013, then lowells said the account was closed
Sara (Debt Camel) says
I was replying to Kfe, not you :)
Stan says
I have been with a debt management company for 9 years and recently I wanted to settle my debts so asked them for a settlement figure from my creditors…they came back with a figure which I duely paid… they have now come back to me a couple of months later saying that the creditors want more money…the people From the debt management company that we’re dealing with my account have left the company so I was wondering what rights I have or don’t have against paying the extra money ?….
Sara (Debt Camel) says
Who is the debt management company? What did you have in writing from them about this?
Stan says
The company is called Moneyplus Group….. I’ve had no written information from them it was all done over the phone
Sara (Debt Camel) says
If you think your phone calls were clear that you wanted to offer the money in a full and final settlement, then you should put in a formal complaint to Moneyplus, email is good complaints@moneyplus.com. They will still have the phone recordings.
Stan says
Yes I could complain but do I have any rights in not paying the extra money ?
Sara (Debt Camel) says
I can’t tell if the creditors have a right to ask for this – they may have agreed to a F&F and be trying it on.
Or Moneyplus may have not explained the full legal situation to you – in which case you could ask for compensation.
Or Moneyplus could have been negligent in not asking for confirmation from the creditors that this was being accepted as a full & final settlement.
Legally there is also a different situation if the settlement money was coming from a third party – a relative say – and not from you.