Subhan Tariq, Esq
How Debt Settlement Can Affect Your Credit
Does debt settlement negatively impact my credit?
When you settle debt, it means your lender has agreed to take less than you actually owe. This is a bad sign for future lenders. To them, it looks like you’re risky to lend to because they may not get all of their money back. This is why it’s a negative item on your credit report, even though it may seem positive because you got out of debt.
In some cases, debt settlement is your best option for debt relief. Unfortunately, it can leave an ugly mark on your credit report.
Settled debt even in good standing will remain on your credit report for seven years.
But it can remain on your report for years more if you are not careful. This may not make any sense at first. Why would an account that you paid off be a bad thing? Wouldn’t it be neutral or even positive, to show potential lenders that you found a way to pay? Not necessarily, settling an account won’t damage your credit as badly as not paying at all but a “settled” status on your credit report is still considered negative.
How long does debt settlement stay on your credit report?
Even with no late payments, a settled debt will stay on your credit report for seven years from the date it was settled according to regulations outlined in the Fair Credit Reporting Act (FCRA).
What about late payments?
A late payment on an account is called delinquency.
Delinquencies are reported to the credit bureaus after 30, 60, 90, and 120 days of being late. If you do make a late payment, it will stay on your report starting on the date it became a delinquent account and was never current again.
How do I keep debt settlement off of my report?
There are a few good methods you can use to get around the pesky seven-year rule, including pay-for-delete and re-aging. There are pros and cons of each method, so get educated on them before you decide which one you want to try.
What if it’s not my debt?
Getting a spammy-sounding call from a debt collector is one thing, but seeing an incorrect delinquent account on your credit report can be alarming.
Don’t worry – there is a way to get rid of it. Gather all the evidence you have to prove that the account isn’t yours and get ready to dispute. You need to send the credit bureaus reporting the error a dispute letter explaining your situation.
Although it’s possible to DIY, debt settlement and have it removed from your credit report, is a complicated venture. Your best option is to reach out to a professional to secure your financial future and professionally settle your debt.
Either way, make sure the account in question gets paid off. An account listed as “paid as agreed” on your credit report will always look better than one that you left unpaid.
If you have already settled, and you are trying to fix your credit. Getting professional help is your best bet for fixing your credit if settlement causes it to dip.
We can help you fix credit report problems. Call 718-674-1245 or message here.