Credit card debt settlement’s affect on credit ratings

September 18, 2012 | By

How does credit card debt settlement affect your credit score?

This question is often asked, and one of the least understood aspects of a credit score.

Debt settlement is reported by a furnisher (creditor of collection agency) as “paid settlement” to a credit reporting agency. This is true whether it’s a credit card debt settlement or other type of settlement.

Of course paid settlement is considered bad credit, but how bad? The answer to this is not a simple one, as a credit rating is affected by many factors. Anyone who says, “A credit score will go down ‘x’ points with a paid settlement entry” simply has no idea what they’re talking about.

The many factors include things like: how long ago was the entry; are there other bad credit entries; the frequency, age, and severity of the other bad credit entries; what is the overall age of the credit file; and what the balances are on your existing credit card accounts.

The more recent a paid settlement entry, the worse the bad credit entry will impact a credit rating. If it’s the first bad credit to be on your credit report, then it will have less of an affect. If there are numerous bad credit entries, then it will impact a credit score more. If there are high balances on credit cards, then credit card debt settlement will also impact a credit rating even more adversely. Take a look at my article on credit ratings to find out more.

All aspects of credit card debt settlement are negotiable.

When negotiating a settlement, just remember that all aspects of a contract is negotiable. Third-party debt settlement companies do not bother with aspects of credit reporting, which is why self help debt settlement is all the more important and powerful.

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