The importance of credit score or rating in a credit based economy such as the United States of America cannot be overemphasized. A credit score or rating is a statistical method used in determining the likelihood of an individual, business or organization in paying back the money he or she has borrowed.
Various matrixes are used in calculating this score. However, the concern of this article is to examine whether your credit score is impacted by your choice of debt settlement to negotiate debt relief and financial freedom.
Debt settlement is a debt relief strategy or instrument used by financial advisors and debt settlement companies to assist an individual, small business owner and organizations renegotiate their debt with lenders and or creditors downward. The purpose of cause is to regain financial freedom for the debtor.
Having established the essence of debt settlement we now proceed to examine its impact on the credit score or credit rating of an individual.
Since debt settlement suggests that you have actually paid less than you owe. Your credit score will be impacted negatively, for instance, assuming you owe a creditor $20,000 and the creditor after entering into a negotiation agrees to write off $10,000 leaving you with an opportunity to repay the remaining $10,000 only. Upon the payment of the agreed sum ($10,000) the creditor updates your credit reports to show a status of settled or paid settled. Any payment status other than that paid as agreed or paid in full will impact negatively on your score/rating.
In other to stand a good chance of using the debt option to exit indebtedness, financial advisors often advice debtor to skip paying their loans for several months due to the perceived belief that creditors will quickly agree to debt settlement in other not to lose their entire money. By skipping your loan repayment plan and defaulting for several months, your credit score is negatively impacted even before using the debt settlement option.
Since the major objective of debt settlement is debt relief and eventual exit, debtors using debt settlement often temporarily sacrifice their credit score in other to gain financial freedom. The process of debt settlement If not carefully handled will have a massive negative impact on a debtors credit rating or credit scores. But if handled by a professional debt settlement company with savvy financial advisors the impact on the debtors’ credit score or credit rating can be minimized substantially
Yes debt settlement often has negative impact on your credit score; yes debtors often sacrifice their credit score for financial freedom, yes a reputable debt settlement company can help minimize the impact on your credit score if you allow them and finally you can regain lost ground i.e. rebuild your credit score by using new credits card since credit score is based on your ability to repay acquired credit. By responsibly acquiring new credit and timely payment of your credit you will improve your credit score or credit rating thus it is safe to state that the negative impact of debt settlement on credit score is not enough to excuse to jettison the idea of using debt settlement to regain financial freedom especially if you entrust the process to a debt settlement company.