Definition

• Your credit rating is derived from information contained within your credit report. A credit card settlement is most often reported to the credit reporting agencies as settled for less than originally agreed, which will have a negative impact on your credit rating.
  
  

Alternatives

• One alternative to a credit card settlement is missing payments, which are reported as delinquencies on your credit report. Delinquencies also negatively impact your credit score and may be turned into collection accounts and, potentially, judgments. Renegotiating a repayment plan with your credit card company is another alternative to credit card settlement. If the credit card company agrees and you continue to make on-time payments, your credit rating can be positively affected.
  
  

Longevity

• Credit card settlements and delinquencies remain as part of your credit rating for seven years. Settlements are a way to resolve the debt whereas delinquencies leave the debt open and can lead to increased costs based on your credit card agreement. Delinquencies that lead to judgments can also affect your credit rating for seven years. Negative items on your credit report have less impact as time passes.
  
  

Implications

• How you pay your bills accounts for 35 percent of your overall credit rating. A settled credit card account tells potential lenders that you paid less than what you owed, which is a negative strike against your credit score. How much you owe versus how much credit you have available accounts for 30 percent of your credit score. A settled credit card debt would not figure in this calculation, but a delinquency or renegotiated payment plan would be part of this calculation.
  
  

Conclusion

• Credit card settlements will affect your credit rating, but a settlement is better than delinquencies, collection accounts and judgments. Even though all four negative items are part of your credit rating for seven years, a settlement has less impact in the overall calculation due to the fact that the debt is resolved and is no longer outstanding.