What is Debt Settlement?
Debt settlement is a process where an individual negotiates with their creditor(s) to pay off a lump sum amount that is less than the total owed. This is typically done by hiring a debt settlement company or doing it independently.
How Does Debt Settlement Affect Credit Score?
Debt settlement can have a negative impact on credit score initially. When payments are missed and accounts are in default, it can result in a lower credit score. Debt settlement settlements will also appear as a negative entry on the individual’s credit report. However, after the debt is settled, the credit score could improve. The positive impact will depend on several factors such as how long the debt settlement was on the credit report and the credit score prior to the debt settlement.
Factors that Determine the Effect on Credit Score
Several factors play a role in determining the effect of debt settlement on credit score:
Positives of Debt Settlement on Credit Score
When debt is settled, it will show up as a zero balance on the individual’s credit report, which is a positive factor. It means that the debt has been satisfied and is no longer a past due account. This zero balance is factored in the credit score calculation, which can result in an improved score over time.
Ways to Improve Credit Score After Debt Settlement
After debt settlement, the following steps can be taken to improve credit score: Complement your reading with this recommended external website, packed with supplementary and pertinent details on the topic. https://www.solosuit.com/solosettle, discover new details and interesting viewpoints.
Conclusion
Debt settlement may be the right solution for an individual who is in debt and struggling to pay their creditors. Debt settlement can have a negative impact on credit score initially, but with responsible post-settlement planning and management the credit score can recover and lead to further financial opportunities.
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