Fully paying off a debt is always the best option to improve your credit score. Settling the debt for less than you originally owed will hurt your credit scores. A credit score measures the likelihood that you’ll pay back money you borrowed, such as through a loan or credit card. Having a credit account settled for less than the amount originally owed is a sign that you’re unlikely to pay back all of the money you borrowed and will drop your credit score. Settling an account — where you negotiate with the lender and they’ve agreed to accept less than the full amount owed as final payment — is better than not paying at all. But a settled account still has a negative effect on credit scores. A settled account will be reported to the credit bureaus as “settled” or “paid in full for less than the full balance.” The “settled” status will stay on your credit reports for seven years from the original delinquency date of the account or from the date it was settled. The older the settlement information on your credit report, the less of an impact it will have.