How Does Debt Settlement Impact Your Credit Score?
Posted by Century Support Services on Sep 21, 2020
If you are looking for relief from your debts and are starting to consider your options, you should keep in mind that each one will affect your credit report differently. Debt settlement may be a wise choice if your debts are taking over your life and you cannot continue paying them. The debt settlement credit score impact depends on the amount of debt you have and how long it takes to settle it. By comparing these effects, you can determine if it’s a better choice for you than alternatives such as bankruptcy.
Does settling a debt hurt credit? It depends on your unique situation, but here are a few things you should know.
The Debt Settlement Process
You may have heard about debt settlement, but it’s important to understand how it works before you make a decision. Debt settlement starts with a careful analysis of all your debts. Not every loan or line of credit can be resolved by debt settlement. Credit cards and old past-due bills may be good candidates. In many cases, you take this route when you’re already behind on the balances.
To start, you create a separate account in which to make deposits, typically instead of making payments to your creditors. Once you’ve collected a certain portion of your debts, a debt settlement company like Century starts negotiating with your creditors. A successful settlement eliminates the debt, usually for less than what you owe. In exchange, you pay a fee for the service at the end.
How Will Your Credit Score Be Impacted During Debt Settlement?
How long does debt settlement affect credit? It’s worth remembering that it will start to negatively affect your report from the first missed payment. The missed payments are likely to continue collecting on your credit until you can settle the debt.
How long does debt settlement stay on your credit report? As a general rule, a debt settlement remains on your report for seven years. Since everyone’s credit is different, it’s difficult to estimate precisely how it will influence your score throughout that period. You may find that it has a larger effect at the beginning than at the end.
What Happens After Your Debt Is Settled?
The total time period from starting your debt settlement journey to a finished debt relates to the amount of debt and how quickly you can build savings to settle it. This means that you may have more late payments on your credit during that period. The good news is that once you have settled your debt, you can make a plan to rebuild.
Determining how long to recover credit score after debt settlement depends on your current credit picture and how it changes over time. For example, if you have a limited credit history at the time of settlement, it may take longer to improve your credit score. You may notice that your options for new credit lines are limited, as well. Once you can start to replace old late payments with new, timely ones, you will probably see your score start to go up.
Debt Settlement Alternatives
Although debt settlement can help all kinds of people in financial stress, there are alternatives with different possible effects on your credit. Here is how they compare:
Bankruptcy: This process can eliminate debts, but requires you to spend time in court and may force you to sell some of your assets. Bankruptcy lasts on a credit report for up to 10 years.
Debt Consolidation: This is a large loan that you use to roll smaller debts into a smaller monthly payment. You may notice a small dip in your credit at the start. These loans may not be available to people who are already past due.
Balance Transfer: This option might not affect your credit, unless you rack up more debt on the old lines of credit. It may not be ideal for people who struggle to control their spending.
Century Can Help to Repair Your Credit
If you are looking at your debts and wondering if you will ever be able to repair your credit at this rate, you are not alone. A reliable debt settlement company like Century earns your trust by working for you while you remain in control of your money.
Take a free assessment to find out if debt settlement is the right choice for you.
Our process involves a personalized plan and regular support throughout your debt settlement experience.