How Long Does a Credit Card Settlement Settled With Prejudice Stay on Your Credit Record?

Settling a credit card account can have long-lasting negative effects.

Settling a credit card account can have long-lasting negative effects.

Your credit report is a history of your credit accounts. Depending on your actions, your credit record can include positive and negative accounts. If you settle a credit card account "with prejudice," your credit report will reflect the fact that you didn't pay the full amount you owed. How that affects your credit in the future depends on the lending criteria of your future creditors and the length of time since your settlement.

Definition

A credit card settlement is an agreement in which you pay your creditor less than you owe. In exchange for your payment, your creditor considers the debt paid in full. Although your debt is now satisfied, the credit reporting agencies will report your debt was "settled" rather than "paid." This designation is important, as it shows other lenders you didn't fully comply with the original terms of your account agreement. A settlement made "with prejudice" means your agreement was completed through the courts, rather than directly with your creditor. Although "with prejudice" sounds like a potentially negative designation, it is simply a legal term meaning that a judge has declared the matter final and binding.

Duration

A settled debt will appear on your credit record for seven years. This begins from the date your account first went delinquent. Many delinquent accounts are sold to debt collectors, who report your debt as a new collection account in addition to your original delinquent account. When you settle a debt, your collection account, if applicable, is removed when your original delinquent account is removed, regardless of which creditor accepted the settlement.

Effects

Negotiating a settlement for less than you owed is usually a negative for your credit report, as the Fair Isaac Corporation assigns 35 percent of your total FICO credit score to your payment history. According to credit reporting agency Experian, the worst thing you can do for your credit score, short of bankruptcy, is to let your account fall into collection status. Future credit can be harder to come by if you have a credit card settlement with prejudice on your record.

Removal

The three credit reporting agencies, Experian, Equifax and TransUnion, are not allowed to delete accurate information from your credit report. However, they can only report the information that creditors send to them. As part of your settlement agreement, you may be able to negotiate with your creditor to have it report your debt as paid in full. Although creditors don't always grant such a request, if you can make that concession part of your negotiation, it will help your credit record going forward.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.

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