How does a credit card settlement agreement affect your credit rating even though you have never been late on a payment?

Answer 1

A settlement will report as a debt that you paid in full for less than the full balance. It is a slightly derogatory status - when you pay off a balance in full completely without settling, it looks better on your credit report. A settlement has nothing to do with paying late on your payments, although most lenders probably won't settle on accounts unless there is a reason for them to take less than what the customer owes, i.e. they are late and unable to afford to pay all of their bills, contemplating bankruptcy, etc. If you are never late on a single payment, it is probably not in your best interest to settle. The only situation I would recommend a settlement is if you are strapped financially and unable to meet your obligations - i.e. you can't afford the minimum payments on your accounts. Some common situations I see people benefit from settlements are that they are unemployment and cash out a 401K or sell stock or use severance pay to pay off their credit cards and they don't have enough to pay everything, so they have to try to reduce the amount of money they owe. Another one is a young person who gets bailed out of a credit card nightmare by family and the family member only has a certain amount they can donate to you to help you out of your mess. To get back to the question, it is a slightly derogatory status on an account - instead of the creditor reporting that you paid your debt in full, it says you settled your debt for less than the total amount due.