Have you recently recovered from a major financial crisis such as bankruptcy or debt settlement and want to see how lower your credit score is? In this article learn how debt settlement affects your credit scores and what you can do about it.
35% of your FICO credit score comes from your payment history.
Your most recent payment history has the biggest impact on that 35%.
Just one late payment can severely affect your score.
Can you imagine what six months worth of late payments can do to your score? The short answer is not pretty.
But before you start to panic and get all worried, know that there are steps you can take to recover from debt settlements faster than a bankruptcy filing to get lenders willing to extend you credit in the near future.
Let's say you started with a 700 FICO score for example.
Let's say it took you six months to settle with all your credit card companies and get your credit card debt wiped out for a small fraction of what you owed.
You can expect your credit score to drop a couple hundred to a few hundred points just from all these missed payments.
By missing payments with several credit card companies they have put a lot of negative information in your credit reports.
So it should not surprise you to see your 700 score dropped to 400 or 500 which is a bad FICO score.
This is just an example for illustration purposes.
You can expect to have some of the worst credit scores possible.
But this will only be for a short period of time, we are talking 2 to 3 years.
Compare that to 7 to 10 years if you had filed bankruptcy to wipe out your credit card debt instead.
Once you have settled all your credit card debt, you will have a very low debt to income ratio and the 30% of your FICO that comes from your amounts owed will be a very good number because you will have no more debt so it will be easier to build up your score again.
This is why you should not panic.
So to answer the question does debt settlement affect the credit score, yes it does and in the short term the effects will be very severe.
But there is a silver lining and you can recover in a relatively short period of time and have a very good credit score in 2 to 3 years once you start building up a good payment history again.
35% of your FICO credit score comes from your payment history.
Your most recent payment history has the biggest impact on that 35%.
Just one late payment can severely affect your score.
Can you imagine what six months worth of late payments can do to your score? The short answer is not pretty.
But before you start to panic and get all worried, know that there are steps you can take to recover from debt settlements faster than a bankruptcy filing to get lenders willing to extend you credit in the near future.
Let's say you started with a 700 FICO score for example.
Let's say it took you six months to settle with all your credit card companies and get your credit card debt wiped out for a small fraction of what you owed.
You can expect your credit score to drop a couple hundred to a few hundred points just from all these missed payments.
By missing payments with several credit card companies they have put a lot of negative information in your credit reports.
So it should not surprise you to see your 700 score dropped to 400 or 500 which is a bad FICO score.
This is just an example for illustration purposes.
You can expect to have some of the worst credit scores possible.
But this will only be for a short period of time, we are talking 2 to 3 years.
Compare that to 7 to 10 years if you had filed bankruptcy to wipe out your credit card debt instead.
Once you have settled all your credit card debt, you will have a very low debt to income ratio and the 30% of your FICO that comes from your amounts owed will be a very good number because you will have no more debt so it will be easier to build up your score again.
This is why you should not panic.
So to answer the question does debt settlement affect the credit score, yes it does and in the short term the effects will be very severe.
But there is a silver lining and you can recover in a relatively short period of time and have a very good credit score in 2 to 3 years once you start building up a good payment history again.
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