Debt Settlement
An arrangement where you negotiate with a creditor to pay less than the full amount owed in exchange for canceling the debt. Settled accounts may still appear on your credit report as 'settled for less than the full amount,' which is negative. The forgiven debt may also be taxable as income.
Related guides
- Full credit & FICO® glossary
Browse all defined terms by category.
- Charge-Off
When a creditor writes off a debt as a loss after it becomes severely delinquent (typically after 180 days of non-payment). A charge-off doesn't erase the debt — you still legally owe it — but it signals to the credit bureaus and future lenders that you defaulted. Charge-offs remain on your credit report for seven years.
- Collections
When a creditor turns an overdue debt over to a collection agency after the borrower fails to pay. Collection accounts are reported to credit bureaus and remain for seven years from the original delinquency date. Paying a collection removes your legal obligation but typically doesn't remove the account from your report.
Frequently Asked Questions About Debt Settlement
What does Debt Settlement mean?
An arrangement where you negotiate with a creditor to pay less than the full amount owed in exchange for canceling the debt. Settled accounts may still appear on your credit report as 'settled for less than the full amount,' which is negative. The forgiven debt may also be taxable as income.
Is Debt Settlement important for my FICO® score?
Understanding Debt Settlement helps you manage your credit profile more effectively, which in turn supports a stronger FICO® score.