Does Settling Old Debt Improve Your Credit Score?

When you pay off or settle an old debt, it can have a positive impact on your credit score. However, the extent of the improvement depends on the specific scoring model used and the details of your credit history.

How Settling Old Debt Affects Your Credit Score

Older Scoring Models May Not Improve

While settling a debt and having it reported as “paid” or “settled” on your credit reports can help your FICO® 9 and VantageScore 3.0 and 4.0 scores, older scoring models may not see the same benefit. This is because these older models do not ignore paid collections the way the newer models do. As a result, your scores generated by these older models may not improve significantly after settling the debt.

Newer Scoring Models May See Improvement

On the other hand, your FICO® 9 and VantageScore 3.0 and 4.0 scores may see an improvement after settling an old debt. These newer scoring models tend to weigh paid collections less heavily than unpaid collections, so removing the negative impact of an unpaid debt can lead to a score increase.

Factors That Influence the Impact

The extent of the score improvement will depend on factors like:

The age of the debt
The amount of the debt
Your overall credit history
The number of other negative items on your credit report

Generally, settling a more recent and larger debt will have a more significant positive impact on your scores compared to an older, smaller debt.