"Does Debt Settlement Hurt My Credit Score?"

I've heard this question hundreds of times over the years. 

The simple answer is "NO", but there's much more to it!


The very question shows a misunderstanding of how credit scores are determined and also how the collection process general plays out.

First of all, if you are a prospect for a debt settlement program, then your credit scores have already been damaged.

If you have had or are going through a severe financial hardship/challenge, then most likely you've either raked up too much debt to be able to make the minimum payments due, or you have fallen behind.

A legitimate, professional debt management company would take the time to go over your individual situation, explore and explain your various options and then (and only then) recommend the solution.

What I am saying is that even though there has been legislation over the past few years to help protect consumers from fraudulent debt settlement companies, there are still some out there...SO BE CAREFUL!

The question is..."Does Debt Settlement Hurt My Credit Score?".

Once you can't keep up with the minimum payments or have fallen behind to the point where some or all of your accounts are being turned over to collection agencies, your credit score has already taken a big hit!

Your credit score is determined by several factors:

  • Payment History                             35%
  • Amount of Debt                               30%
  • Length of Credit History                  15%
  • New Credit                                      10%
  • Type of Credit                                  10%

As you can see, your payment history and the amount of debt you owe account for 65% of the factors in determining your score!

If you've been late or missed payments on a regular basis, your credit score is going to be hurt.

If you have "maxed out" most or all of your cards or accounts, then you are not a very good credit risk (in the eyes of a new lender and the credit bureaus) and therefore, you credit score will suffer.

My point is that if you are a prospect for debt settlement, then your credit score has already been declining.

Once you start (or have the help of a professional debt settlement company) negotiate settlements, your credit report will start showing ZERO BALANCES.

After some time, as you continue to "settle" and/or "pay off" those balances, your credit score will start to improve!

It may not seem reasonable or make sense, but if you understand a little about the mindset of a credit card company or other lenders, then you'll understand.

The credit card industry makes billions of dollars on consumers by offering credit cards to almost anyone!

Several years ago, they discovered that they made more profit from fees, such as:

  • Late payment fees
  • Over the Limit fees
  • Annual fees

These "fees" actually made them more profit than the interest rates!


Carefully examine your credit card statement and you'll be in for a shock!

So, if a debt settlement program does not hurt your credit score, then why doesn't everyone that has debt choose debt settlement?

Because not everyone is a prospect for debt settlement!

If you have accumulated too much debt and are really having a hard time making the minimum payments, you may or may not be a prospect for debt settlement.

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Tags: debt settlement, Credit Score, debt, debt collector