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How does a partial settlement affect my chances to borrow?
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You may be tempted to settle a debt at a reduced amount (partial settlement); however, it is important to know how it affects your ability to obtain credit. We’re going to be straight with you, we never recommend using credit unless it’s used to make you a profit, like a mortgage can when buying a property. Other than that, no es bueno as they say in Spanish.
Marks on your credit file
Firstly, you need to understand that any negative marks, i.e., defaults, County Court Judgment (CCJ) etc will stay on your credit file for six years. Insolvencies like bankruptcy may stay for longer than six years. No matter whether you settle in full or partially the mark will remain for that period of time.
What effect will a partial settlement have on my ability to obtain credit?
Having some sort of settled status may be helpful if the debt still appears on your credit file. If a Creditor or Lender looks at your credit file with the view to providing you some sort of credit facility, they may look at it as glass half full or glass half empty.
Some lenders may look at the debt being settled, even if it is only a partial settlement, as positive (a glass half full) and choose to provide you credit on that basis. Other lenders may look at the debt being partially settled as glass half empty, as the full amount was never paid back and could affect whether they will provide you with credit or how much.
Don't forget to read The Real Debt Guy's final thoughts below!