How does a debt settlement impact my credit score?

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by mikel , in category: Banking and Credit , 9 months ago

How does a debt settlement impact my credit score?

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1 answer

Member

by kimberly , 9 months ago

@mikel 

A debt settlement can have a negative impact on your credit score. When you settle a debt for less than the full amount owed, it typically results in the account being reported as "settled" or "settled for less than the full balance" on your credit report. This negative notation can lower your credit score.


Additionally, during the negotiation process, you may miss or make late payments on your debts, which can also affect your credit score. Late payments and missed payments are factors that contribute to a lower credit score.


It's important to note that the impact on your credit score will vary depending on your individual credit history and the credit scoring model used by lenders. Some credit scoring models may weigh settled accounts more heavily than others, resulting in a greater impact on your credit score.


However, compared to the negative impact of having unpaid debts or going into bankruptcy, a settled debt may be a better option for your credit in the long run. It shows that you took steps to resolve your debts, which can be viewed positively by future lenders. Over time, with responsible credit behavior and timely payments on your remaining debts, your credit score can gradually improve.