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.
Lenders often say that a partial settlement will be very bad for your credit record… but often it won’t be! So it’s good to know all the details.
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 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 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.
Partial settlement is a marker against a debt, That marker isn’t taken into account in the credit scores published by Experian, Equifax and TransUnion that you see when you look at a credit report.
Lenders don’t use the credit scores that you can see. Each lender can have their own rules about what is on your credit record that they want to take into account.
So it’s possible a lender may see a partial settlement marker and decide not to lend to you. This is only really likely though for very large credit applications – mortgage or car finance say.
Most lenders won’t care if you have partially settled the debt. They may think it’s good that a debt is gone – because with one problem less, you are more likely to be able to repay what you borrow from them!
And some lenders will reject you just because there was a default, even if you have settled the debt in full!
So it can be hard to decide if paying the extra money is worth it – there may only be a tiny number of lender that may make a different decision if you partially settle or fully settle a debt.
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.
This also applies to CCJs that have dropped off after 6 years. They will not reappear if you settle them with a partial settlement.
Once a debt with a default or a CCJ has gone from your credit file, the only lender that will know about it the original creditor. So don’t make the mistake of applying for a mortgage to NatWest if you originally defaulted to RBS, or to Halifax if you defaulted on a Lloyds debt.
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.
Getting settlements on old debts
No calls about a debt for years?
Improve your credit score for a mortgage
Andrew says
Hi, we are almost 6 years into our DMP and are now in a position to make full & final settlements. All of our debts were defaulted fairly early on, so I understand that partial settlement won’t cause a new marker for 6 years. Can I just check though, is this still the case where the debt was sold on to a debt recovery company?
Sara (Debt Camel) says
yes, it is still the case. The debts should have a default date on them and will drop off 6 years after that date, whether they are settled in full, partially settled or still being paid.
You may want to read this first before making an offer: https://debtcamel.co.uk/settlements-old-debts-cca/
nava says
hi, SARA
I received partial settlement offer from the creditor.,
It is important to note that on payment of the agreed amount ,you will no longer have any further liability to pay the remaining balance and we will not request any further payment.
if you decide to pay the remaining outstanding balance at a later date, an update would be provided to the credit reference agencies to show the debt as satisfied,
what is the meaning was they will expecting more payment or they will close the account ?
nava
Sara (Debt Camel) says
Ask them if they will mark the debt as partially settled with a zero balance owing on your credit record.
How long ago was the default date showing on your credit record?
Emra says
Hi. I have recently received n1 claim for ccj. The debt collecter is taking me to court fior a debt that drop off my credit report. So, the defaulted debt is older than six years and doesn’t appear on my credit report anymore. I am willing to pay the debt. If I want offer to pay the debt but by installments, a payment plan. My question is would paying monthlt it still appear on my credit report?. guess it is too late now to offer them
full and final settlement.
Sara (Debt Camel) says
what sort of debt was this?
were you sent a Letter before Claim, sometimes called a Letter Before Action? See https://debtcamel.co.uk/letter-before-claim-ccj/ for what one looks like/.
Can you afford to pay the whole debt if you had to – what is the rest of your financial situation like… do you have any other debts you have been ignoring?
Charles says
I owed money to a bank and defaulted since 2008.Its 2020 and now a debt collector want to collect for them via partial settlement. It’s affordable so i want to accept. Would it disappear from my credit file after paying them since the debt goes beyond 6yrs. It’s listed on my credit file for now eventhough it’s over 6yrs.
Again, a CCJ was registered against 3yrs against me using my years ago house. I had moved when the court letters arrived.Can I ask them to remove since I didn’t recieve the letter to act and negotiate payment . Thanks
Sara (Debt Camel) says
The money owed to a bank – was this a loan, credit card or overdraft? Which bank? Has it been sold to a debt collector?
The CCJ – talk to National Debtline about your chance of getting this “set aside”.
Erin says
Is it illegal for a debt collector to list a partial settlement as paid in full? I’m trying to negotiate a F&F payment where it does not show up on my credit report as a partial payment. And what if the collector doesn’t accept an offer? What leverage or options do we have if we can’t offer any higher?
Sara (Debt Camel) says
It’s not illegal but it is against the credit reporting rules because it would not be accurate so not many creditors are prepared to do this.
Partial settlement markers do NOT affect your credit score. It’s up to an individual lender whether they care about them – many just ignore them.
Can you say some more about your situation – what is this debt? How one ago dud you default on it? Has it been sold to a debt collector? Are you currently making payments, if so how much a month? How much are you proposing to offer and where does that money come from?
Ash says
Hi
I have an outstanding default debt of £10k, company agreed a partial settlement of £6k. The default date was 3 years ago so 3 years left till it drops off however I was looking to apply for a mortgage next year. so just wanted to know does it make a difference to lenders and credit report if I partially satisfy or fully satisfy a debt?
Many thanks
Sara (Debt Camel) says
This is hard to say. Some lenders may care. But some won’t and will prefer you to have the extra 4k as a deposit!
Make sure when you apply for a mortgage that you go through a good broker (eg London & Country or Habito) and tell them about this so they can make sure you apply to a lender who doesn’t mind.
What is important is that the debt is settled as soon as possible. Many lenders prefer all defaults to have been settled more than a year before a mortgage application.
Viva says
hi, Sara, thanks for your help and support,
this is my last settlement offer , Santander agreed partially settlement offer , I paid, now they send the letter which says
I am writing with regard to you recent payment which has paid of the outstanding on the above account.
I can confirm that your account has been registered with credit reference agencies to which we subscribe and will be marked as partially satisfied. This information will remain registered for six years from date of default.
If you wish to pay the rest of the outstanding balance, you can do so by sending payment to above address, quoting the account number. Once the full outstanding balance has been repaid, an update would be provided to the credit, reference agencies to update the file as satisfied although the default information would still remain for six years.
My question is I paid £1303.56 for partial settlement but do they still want money from me? Can you give me advice please?
This account was not CCA, and this is 10 years old account, the default on the credit file is gone.
Sara (Debt Camel) says
This isn’t on your credit record any more and they couldn’t produce a CCA agreement for the loan?
viva says
hi, Sara,
yes, 30% agreed partially settlement offer, what will happen next. this is credit card.
thanks
Sara (Debt Camel) says
please talk to a debt adviser eg National Debtline on 0808 808 4000.from what you have previously said you have mortgage problems. I don’t know why you would pay to settle an unsecured debt which is not on your credit record and where no CCA can be prooduced. I can’t help you here.
MoneyWoe says
Afternoon.
I currently have a loan that has not defaulted (only missed payments), even though I have not paid anything on this for 2years – it was a 12mth loan.
I have today had redundancy money come through and have spoken to the company concerned about paying it off.
They have said I have two options.
1 – Pay off the amount in full
2 – Pay 80% of the amount as Partial Settlement, which of course it will be marked as this.
At present I have 3 loans (inc this) and 2 credit cards that are active with 1 credit card that defaulted at £150 that is now marked as satisfied.
Just trying to figure out would it be foolish of me to pay the 80% and jeopardise credit report?
If I could please have your advice.
Sara (Debt Camel) says
How long is it likely to be until you are back in work? because really that has to be your top priority, not settling unsecured debts. See https://debtcamel.co.uk/redundant-debts/
Are you buying or renting? Any priority bills in arrears – council tax, utilities?
Who is the lender here who has made a mess so far of credit reporting? It’s always hard to know what to say in a situation like this, as it’s perfectly possible they will look at your credit record and go back and add a default…. which would be quite right.
How large are each of your debts ?