How Debt Settlement Affects and Helps Mend Your Credit Score
TRUTH – You will experience a negative impact with any debt reduction or debt elimination program.
With that said, Debt Settlement will have the least negative impact of any debt relief option, especially when employed without a Third Party Assistance (TPA) notation on your credit report. This means that the company that you use to help you negotiate with your creditors will not be required to report your participation in their program to the 3 major credit bureaus, Experian, TransUnion and Equifax. THIS IS HUGE! Documentation of that nature will show that you gave up control of your finances and monthly obligations. It implies that you don’t know how to manage your money needed financial counseling and will affect you very similarly to Consumer Credit Counseling programs and Chapter 13 Bankruptcy. If your situation is just that you suddenly don’t have enough money to manage, RUN! A TPA type program is not for you.
TRUTH – A reliable, Non-Third Party Assisted, debt settlement program can help you eliminate your unsecured debt in 18 to 36 months without the long-term negative impact on your credit profile that is experienced with consumer credit counseling or bankruptcy.
Your creditors will not negotiate your balances if you are current. There is no reason for them to reduce and negotiate your balances for you if you are not truly in hardship. Delinquency is proof of hardship. Just look at what is happening in the mortgage industry; some homeowners have been required to be 3-4 months delinquent on their mortgage, near foreclosure, before they could even be considered for a loan modification.
It doesn’t matter what your credit score is if your ability to repay your debts is compromised by loss of income or unsecured debt load. Regardless of payment history, which is only 35% of your actual score, your credit score will fall if your unsecured revolving debt balances are over 50% of your credit limit. One of the credit bureaus scores on high credit, as opposed to high limit. Each consumer has a different scoring card. Not all actions will have the same consequences from consumer to consumer. For example, if a consumer had a spotty payment history in the past, they might be affected more by delinquency today, as opposed to someone who may have had a perfect history in the past, but may be experiencing difficulty for the first time.
The key to becoming a well qualified borrower in this economy is balance. You’ll need decent credit score, coupled with a good debt to income ratio. Often times, unsecured debt is the culprit when investigating why someone’s credit score has dropped like a brick off a building. It’s not rocket science. If your payment history is perfect or near perfect, yet your FICO score is struggling to stay above 660, you have a problem. Without eliminating your unsecured debt, your credit score will surely continue to drop and you can be sure, it won’t be coming back up until you do something about it. Don’t be mistaken, once you realize what is happening, the worst thing you can do for your credit is NOTHING!
If you have a good credit score and you have a good payment history and you STILL got denied for a line of credit, you need to take a serious look at debt settlement. It’s a way to eliminate your debt quickly, without having to announce publically that you are having difficulty with your finances.
Leave a Reply