Credit scores play a vital role in our financial well being. Debt settlement and credit score are directly associated with each other. Want to know how? Read our blog.
Credit score plays a crucial role in our lives and if you are to pay some debts, it is important to see whether the debt settlement would affect your credit score more. Not only this, the fact that if you do not pay the debt on time, the late fees, increased interest or late payment records would affect you credit card score further. This guide will help you see things from a long-term perspective rather than short term.
Things you should keep in mind for the debt settlement and payback:
- Pay your bills as per your due date.
- Do not let your check bounce.
- Do maintain a good track record otherwise you can face problems in debt negotiations.
- Try not to reach a point where collection agencies regularly call you for payback of money.
- Do not go for informal loans from family and friends.
- If you are at the extreme need of money, you can consider debt consolidation Loan.
- You can also go for a credit counseling service; those people can help you reduce debts to seventy percent.
Effects of debt settlement on your credit score:
It might scare you a bit but usually or in most of the cases debt settlement has a negative effect on the credit score. The length of the negative factor can be accessed based on a number of factors such as:
- What is the present situation of your credit?
- How are your creditors reporting about you?
- How large is the amount you have settled?
- Whether the debts you have taken previously were settled on time or not?
- What would be the balance left over after this debt settlement? And many more.
Also, remember that if you have a stronger credit score it would have a harsh impact rather than a weaker credit score.
Why is it so that debt settlement affects your credit score?
There are a number of things that you need to understand why debt settlement is inversely proportional to the credit score. First of all, we have a question in mind that if we are trying to settle our debt then it’s a good thing and the credit company would receive some money from our side then why they degrade the credit score?
This is so because according to original credit agreement you have high credit score because you have paid your previous settlements on time but when you get involve in a debt settlement and pay your outstanding debt, it automatically modifies your original agreement. Thus, you see a degradation in your credit score.
At credit720, our financial experts have a sound experience in handling debt with debt consolidation loans and also, provide the necessary help in budgeting. Contact us for more debt negotiation help.