Debt settlement credit score

Credit Score Impact During Debt Settlement Can Be Overcome

Delaying payment to your creditors is an essential step in your journey toward debt settlement. When you decide to delay payment on your enrolled debts, it is normal for your credit score to drop. This pause in payment gives us the leverage we need to negotiate your settlement and puts you back in control of your debt. 

Meanwhile, by redirecting your payments to your Dedicated Account, you are fueling your debt settlement progress and laying the necessary groundwork for negotiations. 

DELAYING PAYMENT PUTS YOU BACK IN CONTROL OF YOUR DEBT

Ultimately, your creditors want to receive some money rather than no money at all. Making them wait for payment encourages them to accept smaller settlements.

The amount that your score drops depends on a few factors:

  • Your score when you began debt settlement
  • How long you delay payment until a settlement is reached

In our experience clients with higher (670 or above) scores will see a more considerable drop than those with lower (below 670) at the outset of a debt settlement program.* 

YOU HAVE A DEBT PROBLEM, NOT A CREDIT SCORE PROBLEM

Until your debts are settled, you have a debt problem, not a credit score problem. While enrolled in a debt settlement program, you can prioritize managing and resolving your debt rather than worrying about your credit score. Focusing on resolving your debt by delaying payment to your creditors and building funds in your Dedicated Account empowers you to move beyond debt as quickly as possible. 

As soon as your debt is settled, not only should your credit score begin to improve on its own, but you can take active steps to repair it. 

YOUR CREDIT SCORE MAY BEGIN TO IMPROVE AS EACH DEBT IS SETTLED

When a debt settlement is paid, the debt will be removed as an active line of credit. This improves your debt-to-income ratio right away which can lead to an increase in your credit score. For example, by the time our clients are halfway through the program, their score could improve by one bracket or more, usually from poor to fair or fair to good.* 

In a recent survey we conducted, 76.5%* of clients responded that their credit score either recovered or improved after completing their debt settlement program. 

  • 30.9% recovered*
  • 45.6% improved*

DEBT SETTLEMENT WON’T PREVENT YOU FROM TAKING ON NEW DEBT IN THE FUTURE

Having healthy habits in place is key to building your credit score and taking on new debt following your debt settlement graduation. Within a few months of your graduation, most of our clients can responsibly borrow money or use a line of credit without issue.*

72%* of graduated clients report taking on new debt after completing debt settlement, with credit cards and auto loans being the most popular. 

REPAIRING YOUR CREDIT SCORE AFTER DEBT SETTLEMENT

While credit scores can improve over time as debts are settled, you can proactively raise your score by practicing good financial habits. After completing a debt settlement program, most of our clients feel comfortable taking on new debt. This new debt is empowering because it allows them to repair their credit score and practice good financial habits.

Demonstrating your ability to pay your new debt every month will help your score. Common types of debt following the completion of a debt settlement program include credit cards and auto loans. It’s good to be cautious with new debt and follow some good habits that will help you build a good score without digging you back into debt you cannot afford.

CREDIT IMPACT DEBT SETTLEMENT VS. OTHER DEBT-RELIEF METHODS

Credit scores fluctuate over time, but some marks on your credit report last longer than others and carry more weight. Bankruptcy, for example, can do more severe damage to your credit because it stays on your credit report for up to 10 years and can be a red flag to potential lenders. 

Lenders who see a bankruptcy on your report may be less likely to grant you a new credit or give you favorable interest rates if they do because you are considered a high-risk borrower. So while we recommend prioritizing your debt over your credit score, it’s helpful to know that some debt relief methods have a more severe impact on your score than others. 

While some forms of debt relief promise little to no impact on your credit score, they may not do enough to address your debt problem. Debt consolidation loans may have repayment terms that may be too long or monthly payments that are too high for your immediate financial needs.

MOST PEOPLE REPORT BETTER FINANCIAL HABITS AFTER COMPLETING A DEBT SETTLEMENT PROGRAM 

Completing a debt settlement program is a great learning experience and an opportunity for you to start fresh with your finances. Whatever the reasons that brought you to debt settlement, you should feel confident knowing that you’ll have a brighter financial future on the other side. 

87.7%* of the graduated clients from our survey self-identified as having better financial habits after completing debt settlement. They were empowered by debt settlement to take control of their finances and manage their new debt responsibly, which will positively impact their credit scores. 

START FRESH WITH DEBT SETTLEMENT

If you are trying to decide if debt settlement is right for you, the best way to be sure is to speak with a Certified Debt Specialist who can answer all of your questions and alleviate any concerns you may have. Talking with our team is free and easy.

If you have already started a debt settlement journey, it’s essential to follow through with all the program steps. Making your monthly deposits on time and allowing us to handle all communications with your creditors will ensure that you get your settlements as quickly as possible. It’s also crucial to communicate any lingering concerns with our team. We are here to help you feel confident about your financial future and move beyond debt.

*In October 2020, Accredited Debt Relief surveyed clients who had recently graduated from our debt settlement program in the past three months. The data pertaining to “recently graduated clients” cited in this blog is taken from this survey.

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Anna is a Chicago-based Copywriter and Marketing Professional who focuses on financial planning and debt management. When Anna isn't writing for Beyond Finance and Accredited Debt Relief, you can find her volunteering for non-profit art organizations, performing with her vocal trio, watching documentaries, and reading biographies about her favorite artists.