One of the factors highlighted in a debt settlement pros and cons discussion is if it significantly affects your credit score. If it does, how bad is it? The answer will depend on the credit’s current standing, the reporting attitude of the related creditors, the size of the debt to be settled, and whether the debts are in favorable standing.
The amount of debt balance paid for will also play a considerable part in assessing the credit score. There are just several of them, so it is best to educate yourself about adjusting your finances to settle your debt.
1. The Reason For Affecting Your Credit Score
In the debt settlement pros and cons discussion, it pointed out that the reason behind this is that strong credit scores are made to incentivize the accounts that have been settled on time based on the original credit agreement before its closing.
The debt settlement scheme states that you have to pay a portion of the outstanding debt and change the original credit plan. Once the lender shuts down the account because of the original contract’s changes, the credit score is affected. Other creditors will surely notice the score and be more careful when allowing another credit plan to you in the future.
In addition to that, it has the possibility that the lowered outstanding debt is worth a significant decrease in the credit score. The skyrocketing account balance of your credit card and past due payments has potentially affected it somehow. When the debt settlement steers you to an acceptable financial standing in the future, it should be taken into consideration.
2. The Process Of Debt Settlement
The debt settlement pros and cons have emphasized that the credit report provides a preview of your financial standing from past to present. It presents all the previous transactions of your loans and accounts, including the original loan term agreement, the remaining credit limit, and your payment attitude, if your payments are made on time. Every single detail relevant to your payment schedule is seen on the record.
Try to negotiate a debt settlement plan straight from the creditor or find a credible debt settlement firm. This way, you can establish an arrangement where you are willing to pay a portion of the balance. Once the creditor says yes, the debt will be considered as paid-settled at the credit bureaus. While this is more favorable for you than a charge off report, it doesn’t have a similar indication as a rating that says the debt was fully paid as agreed.
According to one of the factors in the debt settlement pros and cons, it is best to negotiate with the lender in advance to have the account be declared as fully paid. This arrangement has a desirable effect on your credit score.
3. The Type Of Debt To Settle
Generally, lenders don’t allow settlement for current and serviced debts with an agreed payment schedule. Thus, it is best to pay off the older and way past due accounts, which has already been given to the collections agencies.
But remember that if you have a debt balance reported to the collection department over three years, settling it will reactivate the debt and appear as a current collection.
Weigh in the debt settlement pros and cons before making the final agreement with your lender.