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Debt Settlement And Credit Damage
Jason Belmont-27674
One of the primary reasons people fear enrolling into a settlement program is that they fear credit damage. This article examines how and why settlement can hurt one’s credit score and the expected damage from utilizing such a service.
Debt settlement itself does not hurt one’s credit. Unlike bankruptcy, it does not appear as separate listing on one’s credit report that independently affects one’s scores. Therefore it is not the service itself but the requirements of the service that can do the credit damage.
Creditors are willing to settle because a client cannot afford payments and is likely to be unable to pay anything and may even go bankrupt. Therefore to “prove” this hardship, debts must be at least 90 days late before a creditor would consider settling the debt. It is these lates and the potential new collection listings if and when the goes into collections that create the credit damage. It is noteworthy that many clients that consider settlement already have lates and collections on their accounts due to hardship and therefore for the most part the credit damage is already done and therefore settlement is not likely to make the struggling person’s credit appreciably worse. Overall the typical settlement client is likely to have a series of lates on accounts enrolled in the program and several collection accounts on their credit report.
After each settlement is successfully made the account will read “settled for less than full balance” on one’s credit report with a balance of “$0”. These settlements on their own will not help one’s credit rapidly go to a high score, as a paid negative on credit is still a negative. The former settlement client is likely going to need to rebuild credit after the program is over as well if he or she wishes to have a high credit score.
Rebuilding and restoring credit after a settlement program is complete does not take all that long if the appropriate steps are taken. The client should consider credit repair to remove any inaccurate derogatory information. Credit will need to be “built” also, starting with secured lines of credit, loans, and credit cards. Within a year credit scores can be brought to very high levels, often even higher than before the settlement process began. Also, since the settlement program did not list as s separate entity on one’s report the client is unlikely to be “red flagged” for the settlement for years afterwards as one experiences after a bankruptcy discharge.
All in all settlement can be a good option for the right candidate but it is certainly not the right path for everyone. The candidate should be experiencing real hardship because of their debts. The candidate should have looked into other options that were available when their credit was good. The candidate should be looking to avoid bankruptcy or other drastic measure. And the candidate should be aware that over the short term they can expect their credit to get worse. The settlement candidate should realize that their credit would have eventually gotten worse anyhow due to their hardship and that something must be lost for them to make the very tangible gain of a new debt-free lease on life.
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