Do Debt Relief Negotiations Affect Credit Ratings?

The first question asked when someone is considering a debt relief negotiation is, will this affect my credit ratings. While you may feel that debt relief negotiation is the best solution for your debt situation, it might not be the best choice if you value your credit rating.

You and Your Credit Score

Your credit score, or FICO score, is a number based on several factors; however, the exact algorithms are a trade secret:

1. Payment history, 35 percent
2. Amounts owed, 30 percent
3. Length of credit history, 15 percent
4. New credit, 10 percent
5. Types of credit used, 10 percent

While the above items are a portion of how your score is built, it is clear that how you pay your bills is a strong indicator on your FICO score. In this example we don't see how using a debt relief negotiation company affects your score, but if you are thinking of using debt relief negotiation, then you are having trouble paying your bills on time, which has a negative impact on your score.

What is Debt Relief Negotiation?

Debt relief negotiation is a process of negotiating with your creditors to establish a lower payment, interest rate or payoff amount on your past due debts. While you can hire a company to do the negotiations for you, you could also do this yourself.

1. Gather your past due bills.
2. Figure out what you can afford to pay.
3. Call each creditor individually and begin your negotiations.

This is a long process, but it will be worth it if you are able to negotiate down your debt, payments or interest rates in the long run. Doing this yourself also gives you an amount of control to negotiate how this information is put in your credit file. For example, as part of your negotiation, you can can request your bills be reported as "paid as agreed" or other positive marks on your credit. If your request is denied, at least you asked.

Does Debt Relief Negotiations Affect Your Credit Score?

Your credit report will be negatively impacted when you use a service for debt settlement or debt negotiation. The use of a company is placed on your credit report as a third-party negotiator involved with your unpaid bills. If you feel you have no choice but to utilize a debt relief negotiation to get ahead on your finances, then choose a company you trust and feel comfortable sharing your financial details.