How Debt Settlement can Affect Credit Score?

Debt settlement is a great concept when it comes to clearing your conscience. However, it has an affect on your credit score.

The level of affect that debt settlement has on your credit score varies. One main factor that determines how much debt settlement can affect you is the number of missed or late payments. This is factored in based on credit card totals.

If a person has one late payment this could cost them 45 to 60 points if that individual has a credit score of 680. The penalty is much higher for a person who has a higher credit score though, taking for example someone with a credit score of 780 points.

This person with a higher credit score without any other late payments would lose between 140 and 160 points. As far as settling these debts, it usually has more of a negative affect on a person’s financial history if the credit card accounts settled are already in good standing.

Debt settlement information would then remain on the credit report for seven years. However, with each passing year the information has less and less of an impact on a person’s overall credit rating.

Concerns

There are concerns associated with using debt settlement procedures even if this process does help pay off unpaid balances much faster.

The main concern about using debt settlement procedures is that this process usually does not start right away. Settlement offers by creditors are usually not made until an account is at least a few months past due.

During this time late payments will be reported to credit bureaus. This causes a drop in your credit scores and you probably will receive collection calls and letters.

The late payments are then recorded for up to seven years. This could cause problems for you in many areas of your life. For instance, it could prevent you from getting a job. It also could stop you from getting the insurance rate you are looking for.

Another major concern is that your settled accounts are not marked “Paid in Full.” Rather they are marked “Settled in Full” or similar phrase such as “Charged-Off Settled,” or “Paid-Settled.”

The main concern of all is that it could take up to a few years to be approved for any new credit cards. Furthermore, you might owe taxes on settled debts as you would be required to report this as income.