Does Debt Settlement Affect Your Credit Score?

Are you considering debt settlement, but concerned it may negatively impact your credit score? If a lower credit 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 credit score to be sure it’s as high as you think it is. You see, if you’re carrying high balances on your credit cards, with many of them being nearly “maxed out,” there’s a good chance that your credit score is only mediocre, at best. Worse yet, if you’ve made even one late payment, your credit score will be reduced, as well.

If you find that your credit score is fairly decent, and you’re worried about your credit file reflecting a lower score as a result of debt settlement, you may have a legitimate concern. Debt settlement in itself doesn't affect your credit score, but delinquency does.

Unfortunately, most creditors won’t even consider working with you until your accounts are near “charge-off” status. At that point your credit report will show that your accounts are 180-210 days delinquent, and you can expect your credit score to be significantly reduced. But, there is good news; you see, your credit score will be reduced for just a short period of time, as compared to how long it would take you to pay off your credit cards through debt consolidation, or by making the minimum monthly payments.

How long will you need to tolerate a lower-than-normal credit 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 credit report – usually 30-90 days after a settlement has been paid in full. Of course if you become a client, we believe in being proactive to ensure that your account status is updated with the major credit bureaus sooner rather than later, therefore, Donaldson Williams forwards your settlement documentation free of charge, to all three credit reporting agencies, as well as a request to update your records immediately following a settlement. Your score will continue to improve as your payoff dates are 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. As a matter of fact, one of my clients called me just seven months after she'd paid off her final account through debt settlement, to inform me that her credit score was already up to 712, which was higher than what she'd started with.

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 credit 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 credit card bills, and then minus your credit 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 credit score. To help you better understand just how long it will take you to pay off your credit cards, click here for our credit card payment calculator.

If you should have any questions, or need assistance, feel free to contact us. For a free consultation, click here. Remember, Donaldson Williams, Inc. charges absolutely no monthly fee and no set-up costs because we work on a contengency basis, and you don't pay a fee for our services until after a satisfactory settlement has been reached with your creditor(s).