Will agreeing to settle my debts at a reduced rate affect my credit rating?

Dear James,

If you settle a debt that has been discounted and it is put as 'Partially Satisfied' on your credit report - could this damage your credit score and put off potential mortgage lenders?

Emma, West Calder

Dear Emma,

This was another popular question this month, with James from Chatham amongst others seeking similar guidance. ‘Partial settlement’ is one of several flags that lenders who share data through Experian can use to add further information to an account. Other examples cover debt management plans, temporary arrangements to pay and voluntary termination. I don’t believe these flags are usually used in credit scoring, but they could well be included in a lender’s underwriting policy rules. This could mean that the appearance of a flag on your report would trigger a manual review of your application, where the additional information could then be considered by one of the lender’s underwriting experts. The upshot of this is that the effect of a partial settlement flag on any future credit application really depends on the policies of any lender you approach, which are likely to reflect how their past customers have behaved. Of course, partial settlement can take place for a variety of reasons, not all linked to debt relief. As a result, I’m not sure it’s something you really need to worry about. If you’re up to date with your current payments, have a positive past repayment record and can afford to service any further credit you’re applying for, there’s every chance the lender will give you a shot. (April 2012)


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