Can A Debt Settlement Affect Your Credit Score?
At Tadross Law, we help hundreds of residents as the leading debt settlement law firm in Bucks County and surrounding areas. With many Americans lacking a long term financial plan, it’s no surprise that there is a whopping $13+ trillion in debt owed by U.S households. In light of this national crisis, we offer help and advice for those struggling to keep up with their finances across Philadelphia.
How Will A Debt Settlement Affect Your Credit?
Debt settlements allow people to pay off debts at lower balances than the full amount that was originally owed. Because an agreement is reached to pay back a lower amount, debt settlement can have a negative impact on your credit score. Credit scores are based on many different factors; therefore the exact impact that debt settlement processes can have on your credit score can vary from case to case.
How Credit Scores Are Calculated
Credit scores are measured using prior statistics to guess the likelihood that somebody will pay back money that they have borrowed. Credit scores are often calculated as a result of how frequently a borrower has paid back the money that they owe over time. Scoring models such as the FICO credit score are used by banks, lenders, and credit card companies in order to make lending decisions for their customers.
Rebuilding Your Credit Score After a Debt Settlement
If you cannot afford to pay off the money that you owe in full, debt settlements are an excellent solution to remove some of your debt. However, this may mean that there will be temporary sacrifices with regard to your credit score. Once all of your balances are settled, you can take time to slowly rebuild your credit score in order to get into a stable position once again. Credit is based on borrowing, so it’s important to borrow and repay responsibly in order to stay out of debt and improve your credit score.