Impact of Debt Settlement on Credit Scores: From Debt Delinquency to Resolution
Are you months behind on debts that you know you will not be able to repay over time? Having debt delinquencies can have a significant impact on your credit score, and those delinquencies can impact your ability to be approved for certain forms of credit in the future. If you have debt delinquencies and want to find a resolution, you may be considering debt settlement. Debt settlement is a process in which you negotiate a payment with a creditor for less than what you owe in exchange for having the remaining debt forgiven. For many debtors, the process of debt settlement is a way of avoiding bankruptcy while still offering an opportunity to get back on track financially. If you are considering debt settlement, you may be wondering: what is the impact of debt settlement on credit scores?
In short, debt settlement does impact a credit score, but it affects a person’s credit score less than serious debt delinquencies. An experienced Lilburn debt settlement attorney can explain in more detail.
Debt Delinquency Impact on Your Credit Score Before Settlement
Debt delinquency — which often leads to debt settlement — has a bigger impact on credit scores than debt settlement itself. As the credit reporting agency Experian explains, accounts that are delinquent and in collections hurt your credit score and continue to hurt it until the debt is resolved. In addition, having delinquent debt can result in much bigger problems than simply an impact to your credit score. Indeed, you can face consequences such as continued contact from debt collectors, wage garnishment, liens put on your assets, and lawsuits.
In short, delinquent accounts can be much more damaging than debt settlement. Often, the sooner debts are settled and delinquencies are resolved, debtors can begin rebuilding their credit.
Debt Settlement and Resolution
Once you settle a debt (or debts), your credit score will be impacted, but the extent of the impact will depend on the details surrounding the debt or debts prior to settlement, as well as other factors. Initially, when you reach a debt settlement agreement with the creditor, your debts will be “written off” by the creditor. As a result, the debt settlement will remain on your credit report for seven years. However, the impact of a debt settlement to your credit score will depend on whether your debts were identified as delinquent debts or charged off debts prior to the settlement.
If you had debt delinquencies prior to the settlement, your credit score will already have been impacted by the delinquencies. While the debt settlement will further affect your credit score, the benefits of debt settlement often outweigh the initial impact to your credit. Indeed, according to a report from CBS News, “while your credit score may take an initial hit” with debt settlement, “the benefits of eliminating a high-interest debt burden can ultimately outweigh the temporary setback.” Once you have reached a resolution with creditors to settle debt, you can immediately begin rebuilding your credit. Within a relatively short period of time, you are likely to see your credit score climb back up if you take on debt responsibly and meet regular payment deadlines.
Contact a Georgia Debt Settlement Attorney
If you have debt delinquencies and want to begin working to improve your credit, then debt settlement could be a solution for you. Given that debt settlement involves negotiations and working out an agreement with a creditor to settle existing debt, it is important to seek legal help with the process. An experienced Georgia debt settlement lawyer at Konn Law Firm LLC can speak with you today about debt settlement. We can tell you more about how debt settlement works and answer any questions you have about the debt settlement process. Contact us today for more information.
Sources:
cbsnews.com/news/will-my-credit-score-go-up-if-i-settle-my-credit-card-debt/
experian.com/blogs/ask-experian/will-settling-a-debt-affect-my-score/
