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Partial Settlements in the UK: Will It Hurt Your Credit Score?
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You might be tempted to settle a debt for a lower amount (partial settlement), but it’s important to understand how this could affect your ability to access credit. To be honest, we never recommend using credit unless it’s to generate a profit, such as with a mortgage when purchasing a property. Other than that, no es bueno, as they say in Spanish.
For many people in the UK, partial settlements seem like a quick way to 'fix' a credit file, but lenders and credit reference agencies don’t always view it that way. Before you hand over a lump sum just to make a debt disappear, you need to understand what truly changes on your report – and what doesn’t.
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Does Your Credit Really Clear After 6 Years in the UK?
Is it true that after 6 years, your credit is clear in the UK?
Firstly, you need to understand that any negative marks, i.e., defaults, County Court Judgments (CCJs), etc., will stay on your credit file for SIX years. Credit reference agencies in the UK (Experian, Equifax, TransUnion) all follow this six-year rule from the date of default or judgment, not from when you finally pay it off.
Insolvencies such as bankruptcy can stay on your record for more than six years. Whether you settle the debt entirely or only part of it, the record will remain during that time. For instance, a CCJ will remain on your record for six years, even if you pay it off in full after the first month. However, paying it promptly can change its status to 'satisfied,” which presents a more favourable appearance to lenders.
How Long Do Defaults, CCJs and Partial Settlements Stay on Your File?
Most defaulted credit accounts remain on your report for six years from the date of default, regardless of whether you later pay in full, settle partially, or ignore them. If you settle a defaulted debt (in full or partially), the default does not restart the six-year period – it still drops off based on the original default date.
If a debt has already been removed from your credit file after six years, settling it partially later on won't bring it back onto your report. It's important to note that some creditors or collectors may suggest that a new “partially settled” entry will appear for another six years, but this's against credit reporting rules and is incorrect.
Does Partial Payment Affect Your Credit Score?
Having some form of settled status might be beneficial if the debt still appears on your credit file. When a creditor or lender reviews your credit file to consider extending a credit facility, they may see it either as a positive (glass half full) or a negative (glass half empty). Some lenders may view the debt as settled, even if only partially, as a positive sign and may decide to offer you credit based on that. Conversely, other lenders may see the partial settlement as a negative (glass half empty), since the full amount was not repaid, which could influence whether they decide to lend to you or determine the amount they are willing to lend.
How “Partially Settled” Marks Show on Your Credit Report
When you agree to a partial settlement, the account is usually marked as “partially settled” or “partially satisfied” on your credit file. This indicates to future lenders that the creditor accepted less than the full balance and wrote off the remaining amount, even though the account is no longer owed.
The good news is that this marker generally doesn't directly alter your numeric credit score – the main impact stems from the original default or missed payments. However, interpretation varies among lenders: some may view it as "debt cleared, risk reduced," while others might see it as "not fully repaid, potential risk," with each lender’s internal scoring system interpreting it differently.
Partial Settlement vs Leaving the Debt Unpaid
From a lender’s perspective, a settled debt—even partially—is usually more favourable than an unpaid one, especially when planning to progress financially or apply for a mortgage later. However, if a default is about to be removed from your credit report soon, paying a lump sum just to improve appearances may not significantly influence how lenders perceive you.
This is why the timing of a partial settlement matters:
- If there are several years left before the default drops off, clearing the debt (even partially) may help how some lenders view you.
- If it’s about to disappear anyway, the benefit is more about your peace of mind and stopping contact from collectors than transforming your credit score.
When Might a Partial Settlement Make Sense?
In the real world, partial settlements can be a helpful part of a broader strategy to clear up old debts if:
- the creditor is willing to accept a significant reduction on the balance,
- and you need a partial settlement status to qualify for a mortgage or similar.
Key Questions to Ask Before Offering a Partial Settlement
Before you send that offer email or letter, ask yourself:
- How long until the default or CCJ is removed?
- Could this lump sum be allocated in a more advantageous manner, such as through investments?
- Will this deal make a significant difference for something important, like a mortgage, in the near future?
If the answer to those questions doesn’t clearly improve your situation, it might be wiser to keep that money for essentials, emergencies, or positive steps forward.
Remember to read The Real Debt Guy's final thoughts below!
The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.
