The answer to your question greatly depends on the amount of the debt in question, and how much money the settlement being offered will save you. If this is a $10,000 account, and settling the account will save you $4000 off the balance, I would encourage you to proceed with the settlement, as the small benefit you would receive on your credit rating is really not worth paying an extra $4000 to resolve the debt. However, if this is a $100 debt, meaning that the settlement will only save you $40, it would probably be worth it for you to go ahead and pay the full balance of the debt. If this account is already delinquent, which I assume it is, since the creditor is offering you a reduced balance settlement, the credit impact of resolving the account should be roughly the same regardless of whether you choose to settle the account or pay off the full balance.
Settling the account will likely result in an account status of “settled as agreed” or “settled for less than full balance” appearing on your credit report. These statuses are not generally as good as a “paid in full” status, but the difference is negligible, especially on an account that is already delinquent. The key thing that will help your credit report is resolving the delinquent debt so it will report a $0 balance on your credit report; how the account was resolved is not nearly as important, especially if the settlement will save you a significant amount of money.
If this account has reached a “charge off” status, you need to pay off this account as quickly as possible, as a charged off account appearing on your credit report can significantly lower your credit score. While setting up payments on the account may help you build a positive payment history on the account, a charge-off status will likely have a stronger negative influence than the payments would improve your score. If the account has not yet charged off, the creditor may be able to “re-age” the account, bringing the debt current and allowing you to continue making payments on the account. However, even if the creditor is willing to re-age the account and set up payments, you must consider that you will be paying interest on the account, probably at a very high interest rate, so paying off the account in this manner may cost you a lot more than settling the account now.
In my opinion, the best approach available in these circumstances is for you to settle this delinquent debt, and then open one or two new credit lines to begin building a positive payment history on your credit report. Use your new cards regularly, but make sure that you pay them off each month to avoid paying interest at the high rates charged by many credit card issuers. Taking these steps will provide you with the benefits and savings of a settlement while allowing you to continue building a positive credit history.
For more information about credit, credit reports, and credit scoring, I invite you to visit the Bills.com Credit Help page.
I wish you the best of luck in resolving this debt, and hope that the information I have provided helps you Find. Learn. Save.