Will a settled car loan improve my credit?

Tara Baukus MelloDear Driving for Dollars,
If I pay a settlement amount on my car loan and they mark "settled" on my credit, will it help my credit score?
-- Trish

Dear Trish,
Settling a car loan debt, when you and the lender agree on a lower balance than your original loan and make the loan paid in full, will lower your credit score compared to paying the car loan on time. I'm guessing that you are asking if settling will help your score because you are already experiencing damaged credit due to late payments or missing them entirely.

The more late payments or missed payments you have, the more your credit score will decline. As a result, if you are unable to make the payments per the original terms of your car loan, then settling the debt sooner rather than later would help your credit score in the sense that it would have a smaller drop than if you continued to miss payments.

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