Debt Settlement Effect On Credit Report

Debt settlement effect on credit report is enormous and it can make a consumer get rid off the debts in no time. Initially, the credit report decides, whether the borrower is entitled to declare bankruptcy.Bankruptcy is applied for only if the consumer is unable to pay off the loan amount.
In majority of the cases, consumers are encouraged to opt for debt settlement. If an individual keeps a track of the credit report, makes payments within the specified time, one may not have to reach a point of debt settlement.

Debt settlement companies and how they function:

Debt Settlement Effect On Credit Report

The effect of debt settlement on credit reports is enormous and can prompt a consumer to get pay off debts in no time. Initially, the credit report decides whether the borrower is entitled to declare bankruptcy.

Bankruptcy is applied for only if the consumer is unable to pay off the loan. In a majority of the cases, consumers are encouraged to opt for debt settlement. If an individual keeps track of the credit report and makes payments within the specified time, they may not require debt settlement services.

Debt settlement companies and how they function:

Debt settlement companies are hired by consumers to sort out matters related to debts. As a rule, these companies work on behalf of the consumer.

Once the debt settlement process is initiated, the consumer is advised to ignore any official letter issued by the creditors. The debt settlement company chalks out a plan to lower payments, which are made on a monthly basis. The first payment made to the debt settlement company pays their fees. Thereafter, the payments made are accumulated and when the payments total a considerable amount, the debt settlement company initiates the process of debt negotiation with the creditors.

The logistics:

Although the debt settlement companies work on behalf of the consumers, the creditors or the lenders agree to wash their hands off the settlement issue only after their dues have been paid in full. The creditors have a tendency to inflate the interest rates and charge late fees. All these developments are registered in the credit report. When a creditor exempts a consumer from paying an amount of $600 or more, it is regarded as income and the consumer is required to pay taxes on that amount.

Any development in the debt settlement process is recorded on the credit report. This includes creditors recording payments made by the borrowers as “Charged off Settled,” “Paid Settled,” and not as “Paid In Full.” Any account which is delinquent will also be reported in the credit report. Negative scores obtained from credit report ratings remain in the credit file for seven long years. In other words, although debt settlement relieves the consumer of maintaining the credit account, opting for debt settlement means resuming issues related to defaulter accounts. This is likely to be registered in the credit report and affect the credit report score for a long time.

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