Demystifying The Impact Of Debt Settlement On Your Credit Score

February 17, 2012 by  Filed under: Debt 

People think that using a debt relief service will harm your credit score. However, going to a third party to help settle your debt might not have such an adverse impact. The only thing you should be aware of is that it will be difficult to apply for new lines of credit while enrolled in a debt relief program.

Just Being Enrolled In A Debt Management Plan Hurts Your Credit

This is the first myth that is largely not true. Enrolling in a debt relief program is not going to cause your credit score to drop based on that one fact. In fact, your credit score is most likely to go up as you start to make regular payments. Most lenders will overlook your lower credit account if it also comes with significantly less debt. Having too much debt makes even the best credit scores irrelevant when applying for a loan.

How Your Score Can Actually Go Up While Enrolled

Enrolling yourself into a debt settlement plan will place all decision making into the hands of your debt service. This means that a trusted third party will be making all of your payments on time each month. Making your payments on time each month will cause your credit score to rise. Your credit account will also go up as your debt load continues to dwindle over time.

Debt Relief Services Bar You From Creating Any More Debt

Most debt relief companies are going to stipulate that you do not open any more lines of credit. This will make it easier for you to pay off your debts without having to worry about any bad financial habits sabotaging you. It also means that your credit isn’t even going to be all that important anyway. The rules of your debt settlement will create a situation where you won’t need your amazing credit score while enrolled.

The best thing you can possibly do for yourself is to get help with your massive debt. Enrolling in a debt relief plan is not going to hurt you in the long run. Regaining the ability to manage your finances should be your top priority. Having less debt to contend with should make you attractive to lenders even if your credit score is a tad lower for a little while. You might even find that having less debt will allow you to make more purchases in cash.

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