Credit Scores and Debt Relief - How Your Credit Score Will Be Affected by Debt Relief
Whether your credit score and credibility in the market will increase or decrease when you get relief from debt depends on the manner in which you have obtained relief.
If you have made use of the protection of the court and if you have left your creditors with no choice but to accept whatever you pay, it is obvious that your credit score will come down.
On the other hand, if you go in for a settlement deal and where the lender is given the option of mutually participating in the negotiations and arriving at specific settlement amount, your credit score will be negatively affected but not to the extent it would have been had you opted for bankruptcy? Another important difference between the impact on credibility in case of bankruptcy and in case of settlement is the permanence of the complication.
In case of bankruptcy, the information will be on your public record for the next eight to ten years.
Even then, you may have to raise a dispute and get the information removed.
If you do not do so, there is a possibility that the information will remain on your credit score for more than ten years.
In such a scenario, this turns out to be a very expensive solution.
You may go in for bankruptcy to avoid a hundred thousand dollar unsecured loan problem today.
However, you will be paying extra interest on each and every loan that you take for the next ten to twelve years.
This means that you will be paying a lot more than a hundred thousand dollars over the span of next ten to twelve years.
Of course, the question of payment of high interest will arise only if you qualify for the loan.
If the loan is simply rejected, you may have to sacrifice and compromise on many aspects just because you have a poor score.
On the other hand, seeking debt relief by settlement is a much preferable option.
Your score will take a hit.
Never believe anybody who says otherwise.
However, you have the option of repairing it as quickly as possible.
Secondly, you would end up with the habit of repaying your debts on time when you finally bring your credit card debt to zero.
This will preclude the possibility of another irresponsible handling of your credit card.
This means that you will find it easy to overcome your habit of escaping repayment whenever you want to.
This may not have an instant impact but it certainly will have a significant impact on your credit score.
If you have made use of the protection of the court and if you have left your creditors with no choice but to accept whatever you pay, it is obvious that your credit score will come down.
On the other hand, if you go in for a settlement deal and where the lender is given the option of mutually participating in the negotiations and arriving at specific settlement amount, your credit score will be negatively affected but not to the extent it would have been had you opted for bankruptcy? Another important difference between the impact on credibility in case of bankruptcy and in case of settlement is the permanence of the complication.
In case of bankruptcy, the information will be on your public record for the next eight to ten years.
Even then, you may have to raise a dispute and get the information removed.
If you do not do so, there is a possibility that the information will remain on your credit score for more than ten years.
In such a scenario, this turns out to be a very expensive solution.
You may go in for bankruptcy to avoid a hundred thousand dollar unsecured loan problem today.
However, you will be paying extra interest on each and every loan that you take for the next ten to twelve years.
This means that you will be paying a lot more than a hundred thousand dollars over the span of next ten to twelve years.
Of course, the question of payment of high interest will arise only if you qualify for the loan.
If the loan is simply rejected, you may have to sacrifice and compromise on many aspects just because you have a poor score.
On the other hand, seeking debt relief by settlement is a much preferable option.
Your score will take a hit.
Never believe anybody who says otherwise.
However, you have the option of repairing it as quickly as possible.
Secondly, you would end up with the habit of repaying your debts on time when you finally bring your credit card debt to zero.
This will preclude the possibility of another irresponsible handling of your credit card.
This means that you will find it easy to overcome your habit of escaping repayment whenever you want to.
This may not have an instant impact but it certainly will have a significant impact on your credit score.