5 Myths about Debt Settlement Affecting your Credit Score
There is no dearth of resources online sharing factual information pertaining to debt settlement and its various effects on your credit score. Yet, there is some misinformation and certain myths about debt settlement affecting your credit score have prevailed. Let us address five myths about debt settlement affecting your credit score.
• Debt settlement has an immediate negative effect on your credit score. This is a perception shared by millions of people who have one or more loans that they are unable to repay on time. Let us clarify this once and for all. Debt settlement does not have any negative impact on your credit score that has not happened already. If you are already late with your scheduled repayments, you have been suffering a substantial adverse review of your credit score. Your credit history is already taking a hit and if you do not go for debt settlement now, then the constant delays and the possibility of being unable to repay the loan entirely with its accrued interest will have a much more profound effect on your credit score. You would not be able to undo that negative impact anytime soon.
• Debt settlement has an immediate positive effect on your credit score. This is again a perception that should be clarified. Debt settlement may or may not have any immediate positive effect on your credit score. It totally depends on the nature of your debt, how many payments you have missed or have delayed and the reasons for the delays or inability to repay and other variables that could be unique to your case or generic and hence similar to other borrowers. Usually, debt settlement would cause no immediate changes to your credit score, if you do it right.
• Debt settlement has no effect on your credit score. This is also not true and hence a myth. Debt settlement will have an impact on your credit score, positive or negative depending on how you follow through. Let us assume you have gone for debt settlement and have been regular with the scheduled repayments thereafter. This will reflect positively on your credit score. If you continue to delay payments and do not end up repaying the agreed upon loan amount with interest, then your credit score will take a hit.
• Debt settlement has no short term or long term effect on your credit score. This is a myth. Debt settlement has a positive impact on your credit score in the near short term. As you continue to repay and get over the debt, your credit score will reflect that.
• Debt settlement wipes off the loan from your credit score. This is untrue. Your loan will find mention on your credit history, the settlement will be reflected and your credit score will be influenced by whether or not you have paid the settlement amount.