Yes, settling a debt instead of paying the full amount can affect your credit scores. When you settle an account, its balance is brought to zero, but your credit report will show the account was settled for less than the full amount.

Will my credit score go up if I settle a debt?

When you pay or settle a collection and it is updated to reflect the zero balance on your credit reports, your FICO^® 9 and VantageScore 3.0 and 4.0 scores may improve. ... This means despite it being a good idea to pay or settle your collections, a higher credit score may not be the result.

How does settling debt affect credit?

In the first method, debt settlement, the accounts will be shown as “settled” in your credit report, which hurts your credit history and your credit scores. ... The balance transfer cards method will make your credit dip slightly, but will improve your credit utilization rate and in effect, your credit score.