A "settlement pending" status on your credit card reflects negatively on your credit, although it can be beneficial to your finances in the long run. For instance, settlement allows you to pay the remaining balance for less than the full amount owed. However, a pending settlement will force you to permanently close the account. Further, the settlement will appear on your credit report, causing damage to your credit score and your ability to qualify for other credit.
Settlement Process
A pending settlement means you or your representative entered into discussions with the card company to resolve your delinquent credit card account through debt settlement. SmartMoney reports that some banks and debt collectors will settle delinquent accounts for discounts of up to 80 percent of the balance. However, settlements for half the amount due are more likely. The settlement is considered pending until you make a payment or a series of payments as negotiated.
Credit Reports
Settlement prompts an updating of your credit reports to show to show that the account was "settled for less than the full balance," according to Black Enterprise magazine. This is considered a very negative credit event because it shows creditors you are willing to walk away from a debt without paying the full amount owed. Settlement information remains on credit reports for seven years, with the impact lessening over time. The impact is often severe initially, with other creditors possibly closing accounts you own after noticing you are starting to settle debts.
Credit Scores
No one can say just how much a settlement will hurt your credit score. People who already have bad credit may suffer very little additional damage, because their credit is already poor. Credit scores are a three-digit number ranging from 350 to 850, with outstanding credit starting at 720 and higher. People with scores that high have the most to lose because of settlement information added to their reports. It is possible that someone with excellent credit could instantly lose 50 to 100 points because of settlement.
Timeline
Settlement activity usually means a person is cleaning up credit problems. At that point worrying about maintaining credit---or a particular credit card---is usually secondary to eliminating debt and clearing the way for a fresh start. Credit scores are rebuilt after settlement by making on-time payments on other loans over two to three years, while also opening new credit lines and using them responsibly.
Secured Credit
Some people rebuilding after debt settlement acquire secured credit cards and loans. The loans are usually easy to qualify for because they require a deposit into a savings account, which is held for collateral. Credit limits on secured credit cards match the amount on deposit.
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