Posted on: Aug. 03, 2017 in Debt, Credit Score

Closing your open debts is generally one of the best things you can do for your credit score. When you owe less, you’ll almost always see your score go up. But if you can’t actually pay these debts, closing them becomes much harder.


There are a number of ways you can work to reduce your debt besides simply paying them down. Unfortunately, many come at a cost. If you’re refinancing a loan so you can get a better interest rate or a lower monthly payment so you that you can start to chip away at the balances owed, it’s important to note how the information will be reported to your credit agency.

Paid in full: If your original debt is recorded as paid in full, it means exactly what you think. Your credit history will show that the amount you borrowed was paid back completely. The account will be closed this is true if it’s a refinance or you just paid off the debt the old-fashioned way. Paid in full is what you’re looking for because it doesn’t show anything negative about the account. If you did refinance, you should see the new account as the active one.

Settled: A settled debt is a deal is made with a creditor for them to take less than what is owed. The creditor takes a loss by not getting the full amount, and they do not mark this as paid in full. A debt closed with this status is seen as a blemish on your credit report because it means you didn’t meet the original obligation.

Settling a debt, while not ideal, is better than defaulting or paying late. It’s important to check your credit report periodically to make sure that debts that were paid in full are marked as such and only those that were settled have that designation. A refinance, in general, should be marked as paid in full.

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