The term "settlement in full" is a bit of a misnomer when applied to situations where you settle for less than the full debt.
It is an offhand way of their saying that they are not going to report settled for less, which will then make your credit report APPEAR the same as if it was settled for the full amount.
All a creditor or debt collector is required to report when a debt is satisfied is that the debt is paid, and thus the current balance is updated to $0.
That provides no information to anyone as to the terms of how you and they agreed to satisfy the debt. You may have paid in full, or they may have accepted less than the full amount. Regardless, the debt is discharged and its amount is $0. Thus, reporting the balance to $0 wont mean that your file shows paid in full.
They can optionally choose, if you settle for less, to additionally report a special comment that makes of record in your file that you did not pay the full debt.
That is never a favorable comment, as it informs others that you have a track record of not paying the full debt that you accrue. That alone, regardless of score, could become a factor in any future grant of credit. You dont want that comment in your credit file/report.
When a party agrees to report "settled in full," that is their way of saying they will only report legally paid, $0 balance (i.e., the entire debt is discharged) without reporting paid or settled for less.
