Some consumers believe that settling a credit card debt is a great way out of debt. While debt settlement can eliminate some of the debts you owe, it is looked on unfavorably by creditors and will harm your credit score no matter what. Talk to a credit counselor or financial adviser before you decide to try to settle your credit card debts.
Credit Score
A credit score is a numerical representation that some companies calculate to represent your credit worthiness. Creditors consider people with a high credit score a safer debtor over those with a lower score. Multiple factors affect how high or low your score is, but paying back your debts regularly and not carrying too much debt at any time are keys to keeping a good score.
Credit Card Debt Settlement
When you settle a credit card debt, you and your creditor agree to terms that allow you to pay off a smaller portion of the total amount of debt you owe in return for the creditor forgiving the remainder. While this sounds quite appealing as it means you have to pay less money than you actually owe, from a creditor's perspective this can be the kiss of death. Once your current and potential new creditors learn you are unable to pay back your debts, your chances of getting a new loan are significantly lowered.
Score Impact
Each company that calculates credit scores does so with its own formulas and considerations, so it is very difficult to know exactly what impact a single credit card debt settlement will have on your score. However, Yahoo! Finance reports that a single debt settlement can lower your FICO score, one of the most commonly used credit scores, by anywhere from 45 to 160 points. However, this bad impact does not last forever, and the longer the settlement remains on your report, the less impact it will have on your score; the precise numbers differ from case to case.
Low Credit Score
When your credit score gets lowered because of a settled credit card debt, it will be much harder for you to get new loans or favorable terms. For example, according to Bankrate.com, the best credit cards available to those with bad credit scores as of March 2011 had interest rates ranging between 7.9 percent and 19.9 percent. People with bad credit will likely only have the option of the highest interest rates on any new loan.
0 comments:
Post a Comment