Do Debt Relief Programs Hurt Your Credit Score
The three most legitimate debt relief intervention options do indeed impact your credit report and or credit score.
Do debt relief programs hurt your credit score. Since the post settlement drop is typically less it s measurably easier to begin rebuilding your credit after debt settlement than after bankruptcy. When considering debt settlement programs it s important to do your research to avoid debt relief scams says leslie tayne founder and head attorney at tayne law group which specializes in debt relief. In general a program of debt settlement will cause your credit score to drop by about half as many points as a bankruptcy. Debt settlement could even end up damaging your credit.
However reducing your debt can also lower your credit score even when it s a good thing. Because this trend typically causes your credit score to suffer a debt relief program will help you get in the habit of making on time payments. Debt consolidation has the potential to help or hurt your credit score depending on which method you use and how diligent you are with your repayment plan. Here are a few ways each of the major debt relief options can affect your credit.
The strategy is considered in situations where people want to streamline the repayment of multiple high interest debt amounts often with the hopes of saving money and lowering their debt burden. Debt settlement companies typically ask customers to discontinue payment to creditors while they negotiate on your behalf. A debt management program may have a slightly negative effect on your credit because it closes your credit card accounts. You want to keep your utilization rate below 30 to avoid negative effects to your credit score.
They also say that it s better on your credit than bankruptcy. If you re looking to get rid of the burden of debt the last thing you want to be dealing with is a scam from a company that promises to help. For example paying off a loan and closing that account may reduce your credit age or mix of accounts which account for about 15 and 10 of your credit score respectively. Payment history is the most important factor in your credit scores and if you miss any debt payments your credit score will take a dip.
But as with consolidation that negative is usually outweighed by the positive payment history you build and the gradual decrease in what you owe. First yes but barely. The programs state that it s only temporary and you can improve your score after you are debt free. The type of debt relief program you use can also positively or negatively affect your credit score.
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