You need to ‘close’ your loans, not just ‘settle’ them

Many people believe that if their loan is settled, then that is just as good as closing the loan. You may find that if you settle a previous debt and go to take out a new loan, you may be rejected due to a ‘settled’ sign showing up on your credit report. It is fair to say that most of us do not actually know what it means to have “settled” on our credit reports. Surely “settled” has a positive connotation, right? Wrong! Having this present on your report is not a reflection of you being responsible with your borrowing.

It is important to understand and know your own credit history if you are wanting to take out a loan with any company. For one, it can save you a lot of time and effort in avoiding making applications for deals and lenders that you are not eligible for. This is important as having too many applications at any one time can lead to a decrease in your credit score. You can check your credit report through Equifax, Experian and Callcredit. These are the top credit reference agencies in the UK.

What does “settled” mean?

To explain this, we will look at an example. Sarah took out a personal loan to help fund a holiday and had, up to this point, been making all the repayments on time. However, towards the end of the repayment period, she found herself in legitimate financial difficulty which meant that making the repayments then become impossible. She could not thus, pay the full amount and upon contacting her lender, they agreed on a settlement amount to be paid instead. This was obviously lower than the amount payable.


Because this has been agreed upon, the lender had reported this loan to be “settled” as opposed to “closed” to her credit file. This meant that any future lenders could see this if she ever applied for any other kind of loan again, including a payday loan, and possible flag her as a risky borrower. You might find this results in a rejection from certain lenders who do not deal with bad credit.

What does “closed” mean?

Essentially, if you take out a loan of any description and pay it back in full plus all the interest due, you will have “closed” your loan. Doing should never affect your credit score negatively. Normally it does not change your credit score, but in some cases it can work to increase your credit score.


What does “written off” mean?

Another layer to the discussion is a loan which has been written off. This is when you are not able to meet the repayments against the outstanding loan or on a credit card for more than a total of 180 days. If this amount of times passes, the lender is required to write off the loan without question.

Like “settled”, the lender will report that your loan was written off and this is, in fact, a very detrimental statement to have on your credit file. It will seriously affect your chances of ever taking out credit from any source again.


Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.