Debt Settlement And Your Credit Report

Your credit report contains information that is used to determine a variety of factors that can have a huge impact on your financial future. Details on your credit report indicate whether or not you pose a credit risk to lenders. Potential employers and landlords can view your report to evaluate credit worthiness and level of responsibility. For this reason it is imperative to avoid negative marks and maintain positive credit history. Unfortunately life is unpredictable and many people find themselves in a position where maintaining good credit becomes impossible. At some point you have to make the tough decision as to whether or not trying to maintain your credit is worth living in debt. If you can no longer pay your bills and are considering debt settlement the first thing you should know is how it will affect your credit.

Debt settlement, a process which involves negotiating with your creditors to reduce the amount of money you owe, can be a lifesaver for those drowning in debt. It does however have several drawbacks, one of which is the negative impact it has on your credit. Since creditors will only negotiate a reduced balance with a person who is no longer making regular payments, you will see negative marks on your report as you fall behind on payments. In an ideal world you would never let this happen, but when you simply can’t stretch your dollars any farther the first thing to go unpaid is the credit card bill. Survival becomes more important than your credit report. If you are successful in negotiating your debt, you can pay off the balances and begin rebuilding your credit while building your financial security.

Settled debt can be reported in a variety of ways. Some creditors will report your debt as settled, or as a paid charge off. This is viewed as a negative to future lenders and may affect your ability to qualify for loans or other credit. If you are approved you will face higher interest rates than your peers who do not have settled debts on their report. You can ask your creditor to report your account as “paid” and in some cases they will comply. This will vastly improve your credit score and expedite the rebuilding of your credit.

When you are considering debt settlement you should think about how this process will impact your credit. This is a debt elimination method that is reserved for people who face a legitimate and severe financial hardship. If you are a candidate you are more than likely already falling behind in payments therefore the process isn’t going to do more damage than you are already experiencing. Conversely if you are able to find any other way to pay your balances on time or in full, you can avoid the negative impact of debt settlement on your credit report.

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