Debt Relief Hotline

How will Debt Settlement affect my Credit Score?

This question can not be accurately answered without knowing information specific to your credit profile.  To have this question answered specific to your situation, click here and complete the Free Consultation form and a Debt Specialist will review your information and then call you to give you a consultation.

If the debt is with a collection agency, collection attorney, or a debt buyer and is reporting on your credit report as a “charge off” / report code I9 or R9, then settling the debt is the smartest decision.  If you pay the debt in full, you are doing nothing better to increase your credit score and you are literally throwing money away.  Once a debt is reported as a charge off, the account can not hurt your credit score anymore than was has already happened.

At this point you have 2 options; pay the debt in full and it will be reported as paid in full.  Or, you can choose a Debt Settlement plan and pay about 40% of what is owed and FH Financial will have your credit report reflect that your account is paid in full with a zero balance.

This part of the Debt Consolidation FAQ answer is written as accurately as possible but under general information terms based on a debt with a credit card company.  The answer may different as it pertains to your unique situation.

A Debt Settlement Program will not have a negative effect on your credit score but there are factors involved with credit card debt negotiation that can have a negative effect on your credit score. In fact, there will be nothing on your credit report or on your public records showing that you had enrolled into a Debt Settlement Plan with FH Financial Service. 

Here are the factors that will contribute to a poor credit score while enrolled into a Debt Settlement Program.  First, before a credit card debt can be settled, the account must be at least 120 days delinquent in payments.  Therefore, on your credit report, it will show that you have a late payment on this account. If you are current on your payments when you enroll into a debt settlement program, your credit score will drop significantly.  If you are already late with payments, the damage to your credit has most likly already occured and debt settlement will not cause it to drop.

If you enroll into Credit Counseling or a Debt Management Plan, then a stamp will be placed on your credit report for 7 years showing that you enrolled into a credit counseling or debt management plan.  To your future creditors, that looks as bad as filing Chapter 13 Bankruptcy.

What most consumers do not realize is that the amount of debt a consumer carries impacts their credit score by 30 percent.  The more debt you have, the higher your debt to income ratio is.  A high debt to income ratio is not good and is a sign that you are having a hard time paying your bills.  If you have $15,000 in debt and have an annual salary of $45,000 then you have a debt to income ratio of 33%.  According to the credit scoring model, you should not be any higher than 40%.

If you are looking at this website, most likely you are already have a high debt to income ratio. If you are still struggling to make the high credit card payments, you have to take a step backward in order to take ten forward; this is one of those times. What we mean by that statement is that you will have to temporally have a bad credit score while we get you out of debt, then your credit will naturally rebuild thru good credit practices. While your credit will not be “destroyed” you may take a hit initially on your credit report. As we settle accounts, your credit score will begin to increase; then we will recommend that you sign up for credit repair to have the negative information removed from your Expieran, Equifax, and Trans Union Credit Report.

To find out the details to your unique situation, you do need to speak with a Debt Counselor at FH Financial so we can review your credit situation and answers your questions regarding debt settlement.