If you’re considering credit relief, you may be wondering if it will hurt your credit score. The answer is complicated, but the short answer is that it depends. Credit relief can help you get out of debt and improve your credit score, but it can also have a negative impact if you don’t use it correctly.
Credit relief is a type of debt relief program that helps you pay off your debt faster. It can be a great way to get out of debt and improve your credit score, but it can also have a negative impact if you don’t use it correctly.
When you use credit relief, you’re essentially negotiating with your creditors to reduce the amount of debt you owe. This can be a great way to get out of debt faster, but it can also have a negative impact on your credit score. When you negotiate with your creditors, they may report the reduced amount of debt to the credit bureaus. This can lower your credit score, as it will appear as if you’ve paid less than you actually owe.
Another way credit relief can hurt your credit score is if you miss payments. When you use credit relief, you’re typically required to make monthly payments to your creditors. If you miss payments, your creditors may report this to the credit bureaus, which can lower your credit score.
Finally, credit relief can hurt your credit score if you don’t use it correctly. If you don’t make your payments on time or if you don’t pay off your debt in full, your credit score can suffer.
Overall, credit relief can be a great way to get out of debt and improve your credit score, but it can also have a negative impact if you don’t use it correctly. Make sure you understand the risks before you sign up for a credit relief program.
If this article caught your attention, that’s a great sign: you’re finally ready to do something about your all-consuming debt. You’ve settled on debt relief as a solution, but you’re worried about possible implications, such as damage to your credit rating. Well, it all depends on the form of relief you employ. Let’s look at your options.
Types of Debt Relief
Does credit relief hurt your credit score? Let’s look first at the kinds of debt relief available:
Debt settlement
This financial strategy basically calls for you to hire a company to negotiate with your creditors – often credit card issuers – to get them to allow you to make a one-time payment of less than what you owe to settle your debt. You’ll usually be asked to cease paying your creditors and instead deposit funds into a special savings account. Once you’re saved sufficient cash, the debt settlement company will begin talks with your creditors in earnest. While creditors are not required to accept settlement offers, they often do because they realize they may otherwise get nothing.
Debt management
Here, you’ll pay a nominal monthly fee to have a credit counselor assist you in planning, and hewing to, a realistic repayment plan. Usually, debt management plans will outline what you need to pay each month and for how long. Your counselor will hold your proverbial feet to the fire; you’ll be accountable for sticking to your plan. You also may be required to forego applications for more credit while you’re in the program.
Debt consolidation
The method lets you roll your debts into a single payment, ideally with a lower interest rate than what you’re now paying. The process also streamlines bill paying since you only have a single, fixed monthly payment to deal with. This kind of credit relief can be accomplished through a personal loan or balance transfer card.
Bankruptcy
Ah, yes, the strategy of last resort. Yet it is a viable option for dealing with overwhelming debt. The process entails having a court assess your situation and make certain you’ve exhausted every potential remedy before discharging your debt. Depending on whether you file Chapter 7 or Chapter 13, a discharge will clear some or most of your current debts.
How Do Debt Relief Plans Affect Credit?
Depending on the type you choose, debt relief can be positive or negative for your credit. Let’s look.
Debt settlement
Although your credit may already be shaky and what you’re doing is getting a fresh start, debt settlement does the most damage. That’s because most plans call for you to skip payments while they negotiate on your behalf. After all, debt relief companies are focused on relieving you of debt – not on your credit rating. That will improve with time.
Debt management.
If you stick with the plan your counselor created with you, you can get out of this with your credit scores unscathed. The key here is not missing any payments, which means your spending must be under control. You need to make a budget and stay with it.
Debt consolidation.
If you manage it wisely and responsibly, debt consolidation is a good way to get debt relief that shouldn’t whack your credit scores. When a lender conducts a hard check on your credit, however, your scores will decrease a few points. Here, too, you need to make all your payments on time, as just a single missed payment can knock your score down.
Bankruptcy
This filing will significantly affect your scores and will hang out on your credit report for seven to 10 years, depending on which type you choose. Before pursuing this strategy, see if another one, such as debt settlement, makes more sense.
So, does credit relief hurt your credit score? It might – it depends. But it’s likely that, if you’re seeking debt relief options, your credit situation is less than ideal. To keep from inflicting more damage, choose a debt relief strategy today.
