One of the most common consequences of debt settlement is the reduction to the consumer’s credit score. A poor credit score is the result of the period between when the borrower stops paying on an account and when the account gets settled.
“Consumers that enter a settlement program stop paying their creditors because they cannot afford to pay them under the creditors’ terms,” said John Wilson, vice president of Superior Debt Relief Services, a debt settlement company. “These consumers do intend to pay and will pay when a settlement is reached. However, the failure to pay creditors under the terms originally agreed to will reflect negatively on the consumer’s credit report.”
Although the effects of a debt settlement on your credit are often unavoidable, they are also temporary and much less severe than bankruptcy.
“Ultimately if a consumer has more debt than they can effectively manage, their credit will be negatively impacted whether they enter a settlement program or not,” Wilson said. “It’s just a matter of when their debt obligations will overwhelm them. The individual who enters a settlement program is making the decision to proactively deal with their debt before they are so completely overwhelmed that no options are available other than bankruptcy.”
There are many ways for consumers to restore their score to where it belongs and even to improve their credit score after completing a debt relief program. Below are a few ways to get started.
1. Check your report for discrepancies. This should be the first step, and one of the most important steps. Credit bureaus and collectors are not infallible. They often make mistakes, and it’s up to the consumer to catch them. Checking for discrepancies, including incorrect addresses, tradelines and balances, and reporting them as soon as possible is one of the consumer’s best defenses.
2. Contact a credit repair agency. There are many reputable credit repair agencies that are able to walk consumers through the improvement process. Superior Debt Relief recommends Vitesse.
3. Build up positive payment history. Take out a small bank loan secured by a savings account or get a new credit card to use solely for gas or regulated purchases. Pay it off entirely every month. This will start building up positive payment history again and have an increasing impact on a consumer’s credit score while the older history has a decreasing impact.
Wilson said, “There is no magic to repairing credit, but with commitment and hard work, it absolutely can be done.”
About Superior Debt Relief Services: Established in 1998, Superior Debt Services is a debt relief company committed to ethically helping consumers lower their credit card debt while encouraging them to develop healthy financial habits. Superior is a reputable company devoted to fighting for the consumer and the regulation of the debt settlement industry by lobbying Congress and working with the FTC for consumer advocacy legislation.
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