Settling credit card debt may seem like the only way to salvage your credit and keep you afloat in a sea of debt. Settling credit card debt can have an immediate negative affect on your credit. Fortunately, the impact is only temporary, in most cases.
Behind on Payments
Settlement negotiation processes typically mean you have missed monthly payments. Each late or missed payment will lower your credit score, according to MyFICO.
Settlement Reported on Your Credit
When settlement negotiations are complete, and your credit card account is paid, the bank will report to the credit bureaus. The account will note that you dealt with the debt, but you paid less than the original amount owed, says MyFICO. Even though a settled account will not boost your score as much as if the account had been paid in full, any settled account is better than a delinquent account or charge-off on your report.
Settling Old Debt
When it comes to settling old credit card debt, arranging to pay can actually lower your score, cautions MSN Money. Be careful when it comes to an old delinquent account. Inquiring about an old debt, or arranging a payment plan, may restart the statute of limitations in some states. Creditors may even be able to sue for the past-due debt. The statute of limitations for collecting debt typically expires in 3 to 6 years, says creditreport.com.
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