Credit scores and your debt's

Debt settlement is an alternative method of getting the consumer out of their unsecured debt burden. It is a program what is intended for those consumers facing undue financial hardship caused by the loss of a job, death of a spouse or medical emergency. The debt settlement option which is available to consumers is sometimes considered the last resource before filing bankruptcy. The majority of consumers do not want to take that approach since filing bankruptcy would cover both unsecured and secured debt. Under taking bankruptcy is a major step for the consumer who should consult an attorney to discuss the in’s and out’s of filing bankruptcy.

When the consumer decides to use a debt settlement company one of the issue discussed how this will affect the consumer’s credit score. In the past, the higher your FICO (credit score) score the better risk you are to lenders. This score has meant you might be able to get lower interest rates either on your secured or unsecured borrowings. The three major credit reporting services use a numerical range of between 300 to 800. According to John UYlzhelmer, president of consumer education at Credit.com, “A 700 used to be enough to nab the best rates, but now a consumer needs a FICO score of 750.”

However, if the consumer is seeking out a debt settlement program their FICO score’s have already dropped. The drop in score has been caused by late payment, over limit or high balances. In fact, paying off a card and keeping it inactive will not necessary hurt your credit score nor will it help your credit score. Recent news articles have indicated that lenders are closing or reducing credit limits on inactive or low usage credit cards. This is also having a negative affect on the consumer’s credit score. So this means if you had good credit and are not facing a difficult financial situation, your credit score is dropping anyway.

The good news is as your debts are negotiated your credit score will begin to improve again. According to creditcards.com, the average household has about $10,679 in unsecured debt. By paying this debt down, is another key to lifting your score, making up 30 percent of the score.

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Will my credit score go up after Debt Negotiation program

If you are in a debt negotiation program and are wondering if your credit score will go up while you are in the program, the answer is that it will. Each time that you settle an unpaid collection account your score will go up. It will be at its highest point once all of the unpaid collections have been settled and paid. Even though it will report as an unpaid collection it is still looked at by the credit reporting agency as a positive mark. Your credit score will always go up when you go from an unpaid collection to a paid collection.

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