Does Debt Settlement Affect My Credit Score?

Yes, you can expect that a debt settlement will negatively affect your credit score. Most reliable sources such as Experian.com, and Creditkarma.com indicate that if your credit score is 700 or higher, you should expect roughly a 150 point decrease in your credit score by settling a debt. If your credit score is 650 or lower, you should still expect your credit score to go down, but not as dramatically.

How Do Creditors Report Debt Settlement?

Creditors report debt settlement to credit bureaus or credit agencies. As a result, the settled debt will show on your credit report as Settled or Paid Settled. FICO released hypothetical scenarios addressing situations where individuals with different credit scores settled their debt. They are below

Scenario #1: 680 Credit Score

If you have a credit score of 680, you will lose roughly 45-60 points on your credit score by entering into a debt settlement. This assumes you have roughly 40-50% credit utilization, eight years of credit history, and no accounts in collections. These assumptions are simply meant to simulate an “average situation”.

Scenario #2: 780 Credit Score

If you have a credit score of 780, under the FICO hypothetical, you will lose roughly 140-160 points on your credit score by entering into debt settlement. Again, the assumption being you have similar credit history and activity as the person above with a 680 score.

Predicting How Debt Settlement Affects Your FICO Score

You can purchase your FICO score at myFICO.com and when you do, you can use the FICO simulator tool on their website; however, if you’re considering filing bankruptcy we recommend you focus on your financial health and less on your credit score. Your credit score will bounce back—in the meantime, bankruptcy or debt settlement can help you immediately restore financial peace in your life. Lastly, when you make a deposit with our firm to file bankruptcy, we purchase your credit reports for you.

Speak With A Debt Settlement Attorney Today

If you’d like to discuss debt settlement, you can reach us at 704.749.7747. The consultation is free and we can also answer any bankruptcy related questions you might have. Making a phone call is the next step you can take toward financial freedom. We’re here to help. You can also request a FREE CASE EVALUATION and we will reach out to you.