Credit Card Debt Settlement & Your Credit Score

Maintaining a good credit score is very important. When it comes to utilizing a debt settlement service, there is a good chance that your credit score has already suffered and may it be the furthest thing from your mind. However, it is still important to understand how using a debt settlement company will affect your credit score, and what steps you will need to take to rebuild your credit after the settlement process is complete.

It is important to define the difference between debt settlement programs and consumer credit card debt counseling. Debt settlement is the process of negotiating a reduced amount with your lenders to satisfy your accounts. On the other hand, credit counseling companies provide financial education in an effort to help you make better financial decisions and manage your credit more effectively.

The effects that debt settlement has on an individual’s credit score varies per person. It depends, in large part, on the debtor’s current credit situation. If a person has a very low credit score and enters into a debt settlement program, it is more likely that this individual will not see a large decrease in their credit score. Debt settlement may actually increase a bad credit score because you will be paying bad debt down. However, if you have a high credit score, debt settlement may cause your credit score to decline substantially.

Debt settlement is a good way to get back on track for many individuals, but it is not where the credit process ends. It is just as important to rebuild your credit, as it is to get out of debt. One of the first things individuals can do to rebuild their credit is to apply for a secured credit card. It is very easy to qualify for these cards. They tend to work like a debit card. Instead of automatically receiving a credit limit, you fund the account by sending an upfront payment to the credit card company. Your purchases are deducted from this balance. When choosing a secured credit card, make sure that they company reports your credit history to the 3 major credit bureaus.

Other credit cards that individuals can apply for to rebuild credit are department store cards and gas cards. These cards are also easy to qualify for. You will likely receive a small credit limit until your establish a positive credit history with the company.

You should avoid closing accounts when you are in the rebuilding process. Closing an account will have a negative impact on your credit score. If you’re unhappy with the credit card rate then you can simply pay the balance off and discontinue using it.

The most effective way to rebuild your credit after debt settlement is to pay your bills on time. This should be a top priority. Timely payments account for around one-third of your credit score. Even if it is the minimum amount required, you should always make timely payments.

It is difficult to estimate how long the rebuilding process will take. Many factors come into play when determining how long it will take to rebuild your credit and improve your credit score. Important factors include the length of your credit history, what accounts you remain current with during the settlement process, and how aggressive your are in implementing your rebuilding plan.

Debt settlement is beneficial for debtors and creditors. Debtors are given the ability to get from under heavy financial burdens, and creditors are able to reap some of the money that they are owed. However, it is important to understand if debt settlement will benefit your situation.

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