How to Remove Settled Accounts from Credit Reports

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Settling an account means that the borrower and lender reached an agreement to settle the debt for less than the full amount owed. It’s certainly better than ignoring a debt or defaulting on a loan, but it indicates that the borrower didn’t pay in full, which is a blemish on a credit report — and one that can linger for up to seven years.

Why You Might Want to Remove Settled Accounts

Settled accounts are likely to lower your credit score. How many points you’ll lose depends on factors like:

• The number of missed payments before settlement
• The amount settled
• The type of debt
• The age of the debt
• The borrower’s overall credit history

No matter how far your score falls, lenders typically view a settled account as a red flag because the borrower failed to repay a previous loan or line of credit in full. Therefore, removing settled accounts can help improve your credit — especially if the settled account is old or contains errors. 

Can You Legally Remove Settled Accounts?

The credit bureaus are not obligated to remove settled accounts for seven years if all the information is accurate.

There is no way to pay to erase settled accounts or any other negative items from your report, so be leery of any such offer. Although reputable companies can help some people with bad credit, the “debt relief” industry is notorious for harboring scammers and fraudsters.

However, you should always scour the information in your report for errors and dispute any inaccuracies you find. You can also attempt to negotiate a goodwill removal of a negative item, especially if you’ve made a good-faith effort to improve your credit and borrow responsibly. 

How to Remove Settled Accounts with a Dispute

Follow these steps to remove a settled account through a dispute.

• Step 1: Get your official credit reports from Experian, Equifax and TransUnion at AnnualCreditReport.com. Despite the name, you can pull your report weekly for free.
• Step 2: Review the settled account for mistakes like incorrect amounts, wrong dates and incorrect listings.
• Step 3: File a dispute with any or all credit bureaus whose reports you believe to contain errors.
• Step 4: Wait for up to 30 days — the maximum time the bureaus can take — to investigate. If they concur with your dispute, they must remove any incorrect information.

Keep in mind: This works only if the account has inaccurate information.

How to Request a Goodwill Removal

If your hunt for errors doesn’t turn up any mistakes, you can petition the lender for a goodwill deletion, even if the account is accurate. 

Write a sincere, polite and formal letter explaining:

• Why you fell behind on the account
• How your finances and borrowing behavior have improved
• Why you would be grateful for the removal and how it would help you become a better borrower

Lenders are under no obligation to comply, but it’s possible they will remove the settled account for a long term customer with a mostly positive payment historu.

The following is a generic template for a goodwill removal request letter.

Subject: Request for Goodwill Removal of Settled Account

Dear [Creditor’s Name],

I am writing to respectfully request a goodwill adjustment to remove a settled account from my credit report, which is currently listed as [account number]. This account was previously in collections and has since been fully paid in full on [date of settlement].

I understand that even though the account is settled, it may still be reflected on my credit report, which could negatively impact my credit score. I would like to explain the circumstances surrounding this account and why I believe removing it would be a fair reflection of my current financial standing.

[Briefly explain the situation that led to the debt, including any mitigating factors like unexpected expenses or temporary hardship. Highlight any positive credit behavior since the issue occurred, such as consistent on-time payments on other accounts.]

Since settling this account, I have made significant efforts to maintain a healthy credit history, with all my other accounts being paid on time. I am currently applying for [mention loan or credit card you are applying for] and this settled account could potentially hinder my ability to qualify for the best terms.

I believe that removing this settled account would accurately reflect my current financial responsibility and commitment to managing credit effectively.

Thank you for considering my request. I appreciate your time and understanding in this matter.

Sincerely,

[Borrower’s Name]

[Contact Information]

What to Do If You Can’t Remove the Settled Account

If the lender denies your request, you can still work to improve your credit score even with the settled account on your report. 

• Pay all your remaining bills on time, every time — payment history is the most significant factor of all, accounting for 35% of your total score.
• Lower your credit card balances by paying down revolving debt and consider opening a new card to expand your open credit.
• Avoid applying for too many loans or too much credit in a short period.
• Be patient and stay the course — new positive behavior will eventually outweigh old settled accounts. Their negative impact diminishes over time. 

How Long Do Settled Accounts Stay on Your Credit Report?

Settled accounts can stay on your credit report for seven years from the initial delinquency, which is the date you missed your first payment. The bureaus should automatically remove settled accounts after that time. If they don’t, you can file a dispute for their removal.

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