How Does Settlement Affect My Credit?

This is a great question. Each individual will have a different credit response to the action of debt settlement. The reality is, debt settlement is not good for your credit in the short run. But, in the long run it is an excellent program for eliminating debt quickly.

Credit Reporting Agencies Report FICO Differently

Because each Credit Bureau (Experian, Equifax, TransUnion) reports credit scores differently, and their methods of reporting are closely guarded secrets, it's impossible to tell exactly the result of a debt settlement on your credit. However, it can be noted that during the debt settlement process, you will not be (or are not) paying your creditors. Each bureau will receive an update from your creditor that you are missing payments. This results in late payments being reflected on your credit report. Each late payment results in a negative impact on your FICO score.

Is Bankruptcy Worse for Credit Than Debt Settlement?

The next question is whether you should seek bankruptcy over debt settlement. There are pro's and con's to weigh which solution may be best for you. Remember that Bankruptcy is a public record, needs to be approved by the courts and will cost you the amount required by a Bankruptcy Attorney. Also, a Chapter 13 bankruptcy does not result in the elimination of of debt. Only a Chapter 7 bankruptcy results in all unsecured debt being absolved. A Chapter 13 bankruptcy is essentially a re-payment plan organized by the court. In other words, a Chapter 13 is much like a Debt Settlement, but is forced through the courts.