First, you'll want to check your credit score to be sure it's as high as you think it is. You see, if you're carrying high balances on your credit cards, with many of them being nearly ?maxed out,? there's a good chance that your credit score is only mediocre, at best. Worse yet, if you've made even one late payment, your credit score will be reduced, as well.
If you find that your credit score is fairly decent, and you're worried about your credit file reflecting a lower score as a result of debt settlement, you have a legitimate concern.
Unfortunately, most creditors won't even consider working with you until your accounts are near ?charge-off? status. At that point your credit report will show that your accounts are 180-210 days delinquent, and you can expect your credit score to be significantly reduced.
How long will you need to tolerate a lower-than-normal credit score? Well, that depends on your ability to generate sufficient funds to pay the agreed-upon settlements negotiated and reached with your creditors. Generally, your score will improve when zero balances are reflected on your credit report ? usually 30-90 days after a settlement has been paid in full. You can speed this process up by being proactive and sending proof of payment to the major credit reporting agencies, rather than waiting for your creditor to report the changed status. Your score will continue to improve as the debt settlement process is further behind you, and can expect a score of at least the mid-600 range within twelve months of paying your accounts off through debt settlement, provided your mortgage and installment loans do not reflect any late payments.
If you're struggling each month to make the minimum payments on your accounts, and debt settlement seems to be your best option, a temporary reduction in your credit score probably shouldn't influence your decision too much. Rather, peace of mind and the ability to pay your bills should be your main concern. If you take a realistic look at your finances, you may very well see that you're in deeper than you thought. I urge you to gather all of your bills and add up your monthly expenses ? including your credit card bills, and then minus your credit card bills. After you've made the comparison, you'll likely understand that the benefits of debt settlement easily outweigh the few months you'll need to deal with a reduced credit score.
Many consumers do not understand the impact that debt has on their credit score. Further, they do not understand the various actions that can affect their score. Some of these debt actions may seem innocuous, but can have far reaching repercussions to the unwary consumer. This article will look into a few of the ways that debt and your credit score are linked.
The most obvious way that debt and a credit score are linked is when the consumer fails to make timely payments. As debt mounts, paying the bills on time can become harder and harder and a few bills may end up being paid late or not at all. If a bill is over 60 days late, it is likely to be reported to the credit agencies and will, ultimately, affect your credit score.
Another issue with debt and credit score is the level of debt that a consumer has on file. Your credit score is based on a many factors and one of the most important is the debt-to-income ratio. Even if you are paying all of your bills on time, if the percentage of debt that you have reaches a certain level as compared to your income, red flags go up at the lender's office. In other words, the more money that is required in order to pay your current bills means the less money you will have on hand to pay future loan bills should the lender approve your loan application for any new loans.
The debt-to-income ratio cut off level varies from lender to lender and from loan type to loan type. An application for a home loan would almost certainly have a lower ratio cut off number than a loan request for an automobile. The best way to counter this is to pay off your debts in a timely manner. This can be especially true if you want to apply for a home loan.
Something that many consumers do not know is that many times a credit score can be affected by loan applications themselves. Whenever a person applies for a loan, and this includes credit card applications, that request for credit is logged into the credit report. If a lender sees too many of these applications being generated within a short period of time, that, too, brings up the red flags. The odd part about this is that the applications do not need to have been approved in order for this to look bad on your report. The simple fact that you submitted the applications (in those high numbers) is all that is needed to, perhaps, have a negative turn on future credit.
The way to counter this is to not submit frivolous credit applications, especially those credit card applications that swamp most mailboxes, unless you truly need and want that a particular credit line with a particular credit company. Be selective in your choices and this will all but eliminate this potential problem.
Lastly, the time to worry about debt and credit score problems is before they become problems. If you see any indication that you are heading for financial troubles, take action to head it off. Keep in mind that some credit issues can stay on your credit record for up to seven years, and will lower your credit score during that entire time.
Both Marie Megge & Peter Kenny are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Marie Megge has sinced written about articles on various topics from Finances, Credit Counseling and Debt Consolidation. Marie Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit. Marie Megge's top article generates over 18100 views. to your Favourites.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for The Thrifty Scot, please visit us at and. Peter Kenny's top article generates over 368000 views. to your Favourites.