Have you ever been in a situation where you’re trying to protect your credit score, but you have no money at the end of the month to even use it? As unusual as it may sound there are many people concerned about their credit score that are having trouble paying credit card debt.
There isn’t a one-answer-fits-all for how debt settlement will affect your credit score because everyone’s situation is unique. However, FICO (also known as Fair Issac Corporation- the ones who create the credit score formula) made it easier to have a general understanding of what to expect if you’re going to use one of the debt relief programs like debt settlement or bankruptcy. It even shows examples if your credit card is maxed-out, you have a 30-day late (missed payment) or if you have a foreclosure.
Debt Settlement Credit Impact Analysis
Nonetheless, a credit card debt settlement plan has roughly the same effect as being late on your payment. If your credit score is 780 then a missed payment (30-day late) will lower your score by 90-110 points whereas a debt settlement would lower it by 105-125 points so the difference isn’t huge.
Those of you that are about to fall behind or have already done so will experience little difference in the credit score impact with debt settlement than doing nothing at all.
If your credit score is 680 then the credit score impact is much less than for those with 780. For example, a missed “30-day late” payment lowers the score by 60-80 points whereas a debt settlement plan lowers the score by 45-65 points.
What Has The Most Impact On The Credit Score
The worst thing that you can do to your credit score is file for bankruptcy. It stays on your credit for up to 10 years, but will remain on your public record forever. For some people bankruptcy is the best thing they can do. From a credit perspective bankruptcy will drop your credit score the most.
If you’re about to fall behind or already have, than the credit impact of a debt settlement program will hardly make a difference.
Some people obssess about their credit score when they can’t even save for retirement. A 780 credit score can’t help pay for your retirement. What you really should be doing is take the focus away from the credit score and put it on your financial situation. You could have the best credit score, but if you’re stretched thin you probably can’t even afford to use it!