When Can Debt Settlement Improve My Credit?

For consumers with seriously delinquent debts, debt negotiation may be a good strategy to improve your credit. Seriously delinquent debts are those that are in collections or charged off that still appear on your credit. By settling the debt, it can be listed as “paid”, “settled,” or “satisfied” on your credit report, which will be viewed more favorably versus an unpaid delinquency.

Since creditors or collection agencies do not make money by reporting delinquencies on your credit, they may agree to delete any negative information in exchange for a settlement. This is often a difficult stipulation to negotiate in exchange for a settlement, but in some instances it is possible.

One likely scenario when a creditor will agree to list the debt as “paid” and erase any delinquencies is when settling the debt could potentially do more harm for your credit than good. This situation arises when a debt is seriously past due and by paying it, you will prolong the time period it will appear on your credit. A debt is reported on your credit for seven years after the date of delinquency, and by paying a debt that is several years past due, you can reset the time frame that it appears on your credit. For example, let’s say you are 6 years past due on a particular debt, and the statute of limitations has expired, leaving the creditor with little expectation of actually collecting the amount owed. A statute of limitations is a law that sets forth the maximum period of time, after certain events, that legal proceedings based on those events may be initiated. For debt, the statutes of limitation apply to the maximum period of time after a consumer has become delinquent on their payments. If you choose not to pay the debt, the creditor could not pursue you legally to collect the balance, and it will only take one year before the account history is removed from your credit altogether. By paying the debt, however, you will be reviving the debt and the creditor will be allowed to report the negative account history for another 7 years. In this situation, the consumer has no incentive to pay the debt unless any negative credit information associated with the debt is entirely removed. Therefore, many creditors will readily agree to list the debt as “paid” and delete any negative account history on the consumer’s profile in exchange for a settlement.

Are you a consumer interested in using debt negotiation to improve your credit? Please feel free to call (877) 274-1260 or fill out a form and we’ll contact you as soon as possible.