The Areas of Your Credit Score Debt Settlement Affects Positively

It is no secret to the informed consumer that enrolling in a debt settlement program can have adverse effects on your credit score. Individuals enrolled in debt settlement programs voluntarily stop making their monthly payments to each of their creditors in order to accumulate funds in a savings account eventually used to settle the debt. As a result, each account becomes “past due” and the individual is no longer current on their accounts. Keep in mind, your credit score is determined by your payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%). As each of the accounts become past due, the payment history segment of your credit score is negatively influenced until settlements are reached through negotiation. However, it is essential for the consumer to recognize that entering a debt settlement program to achieve debt relief can also have positive effects on your credit score.

To begin, the negative effect on your payment history as your accounts become past due may not be as severe as you would expect. For instance, an individual who enrolls in a debt settlement program who has a low credit score to begin with and is already several months behind on payments will not suffer a tremendous hit to their credit score.

In addition to this fact, debt settlement is a debt relief option that essentially aims at improving your credit score in the long run and helps the consumer to re establish a positive credit history once they have graduated from the program. To begin, negotiations typically last roughly two to three years, at which point the debts that the consumer previously owed are considered settled, or “paid off.” As a result, the amount owed (30% of your score) segment of your credit score will have improved drastically as you currently begin a life free of debt obligations.

Furthermore, once the consumer has graduated from FDR’s debt relief program, they have an ample opportunity to improve their new credit (10% of your score) segment of their credit score. Being debt free enables the individual to re-establish a positive line of credit in addition to the uplifting fact that there would at that point be zero dollars owed to the creditors. These factors prove how a debt settlement program is an effective form of debt relief that potentially can put you in the position to improve your credit score. How much, of course, depends on how well the consumer manages their budget over the following months. FDR is always glad to extend, if necessary, a financial plan that can help graduated consumers get back on their feet and, in the eyes of the lender, appear financially trustworthy once again.