Debt Settlement And Your Credit Score
By Marie Megge
Are you considering debt settlement, but concerned it may negatively impact your score? If a lower score is your main concern regarding debt settlement, read on for answers to some questions you may have.
First, you’ll want to check your score to be sure it’s as high as you think it is. You see, if you’re carrying high balances on your cards, with many of them being nearly “maxed out,” there’s a good chance that your score is only mediocre, at best. Worse yet, if you’ve made even one late payment, your score will be reduced, as well.
If you find that your score is fairly decent, and you’re worried about your file reflecting a lower score as a result of debt settlement, you have a legitimate concern.
Unfortunately, most creditors won’t even consider working with you until your accounts are near “charge-off” status. At that point your report will show that your accounts are 180-210 days delinquent, and you can expect your score to be significantly reduced.
How long will you need to tolerate a lower-than-normal score? Well, that depends on your ability to generate sufficient funds to pay the agreed-upon settlements negotiated and reached with your creditors. Generally, your score will improve when zero balances are reflected on your report – usually 30-90 days after a settlement has been paid in full. You can speed this process up by being proactive and sending proof of payment to the major reporting agencies, rather than waiting for your creditor to report the changed status. Your score will continue to improve as the debt settlement process is further behind you, and can expect a score of at least the mid-600 range within twelve months of paying your accounts off through debt settlement, provided your mortgage and installment loans do not reflect any late payments.
If
you’re struggling each month to make the minimum payments on your accounts, and debt settlement seems to be your best option, a temporary reduction in your score probably shouldn’t influence your decision too much. Rather, peace of mind and the ability to pay your bills should be your main concern. If you take a realistic look at your finances, you may very well see that you’re in deeper than you thought. I urge you to gather all of your bills and add up your monthly expenses – including your card bills, and then minus your card bills. After you’ve made the comparison, you’ll likely understand that the benefits of debt settlement easily outweigh the few months you’ll need to deal with a reduced score.
Marie Megge is a consultant in the services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding and debt visit www.donaldsonwilliams.com
