Debt settlement services is one of the most popular methods for people to settle their debts. Although debt settlement can reduce your debt burden, it also ruin your credit score at the same time. However, this is not something you should worry about because you can rebuild your credit score back when the debt settlement process is completed. The amount of impacts debt settlement have on the credit scores vary across different individuals depending on their financial situations.
Late Payment Fees
Debt settlement can affect your credit score because you stop making payment to the creditors. When you did not pay your credit card bill on time, late payment fees will be added into your account. Consequently, your credit score will drop when the credit card company report back to the credit bureau about your missed payment.
How Much Credit Score You Will Lose
On average, debt settlement can reduce your credits score by about 100 points. Debt settlement will have a bigger impact on your credit score if the credit card you settle is in good standing. Your credit score will also be affected more if you are attempting to settle more than one credit card. Sometimes, the collecting agency didn’t report your debt to the credit bureau. If this happens, you can negotiate with the creditor not to report back to the credit bureau about your missed payment.
Settled Account
Once your account is settled, it will be reported back to the credit bureau as “settled”. Your credit score will drop because you are paying less than the full amount. Your credit score will be affected if the collection agency has already reported it to the credit bureau.
How Long Will It Remain on Your Credit Report?
Debt settlement will stay on the credit report for at least 6 – 7 years from the time you make the last payment. The older the information is, the lesser the impact it will have on your credit score. In most cases, the negative mark and other collections will be removed from your credit report after 7 years.
Conclusion
In conclusion, the purpose of debt settlement is to help you get rid part of your debt if you can’t afford the full debt amount. It is worth it to sacrifice some of your credit scores. Debt settlement services is a good option for people who aren’t looking to obtain any loan in the near future.