Are you considering debt settlement but are afraid of what it might do to your credit score? You definitely should be a tad bit concerned simply because just about any activity that affects your credit could in turn affect your credit score. The truth is depending on the situation, debt settlement could have a negative impact; however, there are scenarios where it may not. So let’s take a closer look at specific scenarios to determine how it may affect your score.
If Your Credit Score Is High:
If you are currently boasting a 720 credit score, yet are thinking about debt settlement, something fishy is definitely going on. Most likely, you are using one credit card to pay off another, so in the eyes of the lenders you’re doing a good job, but essentially, you’re drowning in debt and don’t know how to fix it.
Well, if you’re in this predicament, you may want to look at an option outside of debt settlement to help. Because of the way you’re required to pay your bills off in debt settlement, you would actually have to stop paying them for a while to build up enough money to pay one lump sum amount. This might take months to do. In the meantime, you’re falling behind on payments, which will be reported to the three bureaus resulting in a lowered score. Once all debt is settled, your score should raise significantly; however, it may not reach the same height as before.
If Your Score is Low:
On the other hand, if your score is already low, you probably won’t see much of a difference because you may have already fallen behind in your payments – this will be nothing new as far as your reports are concerned. However, the good news is that after you’ve settled your debt with the collectors, your score will significantly increase. So in this case, your score will be affected as well, but only in a positive way.
Knowing your own personal situation will help immensely in determining whether debt settlement is for you. So check out your own credit score on Go Free Credit and determine how a lack of payment for several months might affect it before agreeing to a debt settlement contract.