Credit glossary
Settled account
A debt the creditor or collector agreed to close for less than the full balance, reported as settled rather than paid in full.
Settling stops collection and caps what you pay, but the account stays negative on your report, usually alongside the late payments and charge-off that came first, and it ages off seven years after the original delinquency. The forgiven amount is generally taxable income and may come with a Form 1099-C, though the IRS lists exclusions such as insolvency and bankruptcy.
Get every term in writing before paying: the amount, the deadline and how the account will be reported. Afterward, check that each bureau shows a $0 balance. A settled account that still shows a balance is an error you can prove with the settlement letter and payment record. Rebuilding from there comes from new on-time history, not from the settlement itself.
Guides that go deeper
- Settling a debt for less than you owe: credit and tax effectsSettling closes a debt for less than the balance, but it's reported as settled and the forgiven part can be taxable. The math and the 1099-C, explained.
- Rebuilding credit after debt settlement: what's left and what to fixAfter a debt settlement, your report shows the late payments, the charge-offs and a settled status. How long each lasts, the tax bill, and how to rebuild.
Sources
- Topic no. 431, Canceled debt: Is it taxable or not?, Internal Revenue Service
- How To Get Out of Debt, Federal Trade Commission
- How long does negative information remain on my credit report?, Consumer Financial Protection Bureau
This is education, not legal or financial advice. Spot an error? Tell us and we'll fix it.