How Important Is Your Credit When Trying To Settle Debt?

If you are going to settle debt, you may wonder what the connection is between debt settlement and your credit. As you know, credit scores are important in today’s world. Everyone from businesses looking to hire, to car dealers who can give you a loan to purchase a new car, to those offering consumer credit in the form of credit cards or store credit, check credit scores and make determinations about you and your ability to repay them based on these scores. How important is credit score, though, when you are in debt and are trying to settle that debt? The answers vary, and depending on your credit score, options may or may not be available to you based on your personal answer to this question.

Your Credit Score and Debt Settlement

Credit score is important if you are looking to consolidate or settle your debt through an unsecured debt consolidation loan. In this case, a good credit score is key, because potential creditors will be able to see that you are at a low risk for default and may negotiate better interest rates, longer or more favorable repayment periods, or other beneficial terms with you based on a good credit score. If you have a poor credit score, it will be harder to get an unsecured debt consolidation loan, which may push you towards the concept of debt settlement, where a portion of your debt is forgiven in return for payment of a lower amount.

Debt Settlement and Credit Scores

In a debt settlement situation, the opposite is true, and a poor credit score is more beneficial:

If creditors receive an offer for debt settlement from you, they will look at your credit score and how you are paying your other debts versus how you are repaying them.
If you are paying your other bills and have an excellent credit score, the creditors may deny or make a lower offer of settlement because you are obviously able to repay your debts on time.
Essentially, they will want to know why they should accept less than they are owed when your other creditors are still being paid in full and on-time? Here again, your credit score is vital to your debt settlement options.

It’s obvious that your personal credit score plays a big role in settling your debt. There is one final important part that your credit score will play in the debt settlement system, and that is the role of helping you recover after debt settlement is complete. Your credit will likely take a hit from any debt settlement, so if you have a good credit score, expect it to drop after the settlement. However, you may receive a more favorable credit score from having zero balances and no late payments if your credit is already poor and you settle delinquent debts with a settlement program.

Getting Help

If you are considering debt settlement, it is a good idea to consult with an experienced debt settlement attorney. Your attorney can guide you through the process of deciding how to settle debt and can negotiate with your creditors for you and act as your advocate every step of the way. He can also answer any questions you may have about how your credit or other factors will affect your debt settlement.

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