Debt Settlement… Simplified. How Will It Impact My Credit?
Debt Settlement… Simplified
We’re breaking down the in’s and out’s of debt settlement so you can made an informed and educated decision.
How Will Debt Settlement Effect My Credit?
One of the biggest drawbacks to the debt settlement process is a potential negative impact on your credit score.
There are two main scenarios that we will look at- those who have fallen behind on their accounts and those who are still current. Our debt settlement program is designed to help individuals who have fallen behind on their accounts, or feel that they inevitably will in the near future.
If you are not familiar with the FICO credit reporting system, it may be helpful to first understand what goes into determining your credit score. You can find that information here.
I’m Still Current On My Accounts
For anyone who has managed to stay current on your credit card accounts, the impact of a debt settlement program on your credit score may be significant. Throughout the process each of your accounts will fall behind. This results in your accounts being reported delinquent to the credit bureaus- 30 days, 60 days, 90 days, etc. eventually leading to a “charge off”.
If you are current and have a good credit score, it may be best to consider another option. Our Christian Debt Advisors are happy to help you make the determination and point you in the right direction, whether it lie with our company or not.
Sometimes you can be current on all of your credit cards but still have a poor credit score. If that is the case, it may not be as great a concern.
If you don’t have any major purchases in the future that will depend on credit, such as a car or a home, it may also be worth seeing your score decline to rid yourself of the overwhelming debt.
How Long Will It Take To Rebuild My Credit?
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This will in part depend on the length of your program. If you are on a 3 year program, we expect it will take 3 years to settle all of your accounts. The layout of every program is unique, but you will have accounts settled all throughout the course of your program. Each time one is settled that account is reported to the credit bureaus as being “settled in full”. While this is still technically a negative remark, it is much better than being delinquent as it shows you have resolved the debt.
Most reports for consumer credit cards will last for 7 years. Most bankruptcies will last for 10 years, so debt settlement is a few years shorter and in most cases less significant.
I’m Already Behind On My Accounts
If you are already behind on your credit cards, your credit score has already taken a bit of a hit. Just how much would depend on how far behind you are, as well as all of the other factors that go into determining your credit score.
In this case, you are already experiencing the biggest drawback of a debt settlement program.
While from a credit reporting standpoint, everything stated for those who are current does still apply. Payments will not be made until an agreement is reached, and your credit report will reflect this. The big difference is that the damage is already done, and all that is left is to work to fix the situation and get back on track.
There is no shame in being behind on your debt. The shame is in letting yourself stay behind.
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How Long Will It Take To Rebuild My Credit?
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Again, everything mentioned above from a reporting standpoint does still apply. Most items will be reported for 7 years, regardless of whether you are current or behind when you come to us.
The primary difference is that, depending on how long your accounts have gone unpaid, agreements may be able to be secured more quickly. If so, having the accounts resolved sooner would help you see a jump in your score sooner.
Important Note!
FICO recently announced planned revisions to their scoring calculations. One major change is that collection accounts, once resolved via payment or settlement, will no longer negatively effect your credit score. More verification is needed, but if their reports are true it will mean that once an account is settled it will greatly improve your credit score right away. This should leave the effect on your credit score only being drastic until those accounts are settled.
