subject: How Using Debt Relief Programs Will Affect Your Credit Score [print this page] How Using Debt Relief Programs Will Affect Your Credit Score
Large amount of debt in your name can be a very big burden. People try out many debt relief programs to solve this financial crisis. Most of the debt relief programs if chosen correctly can relieve you of your debt effectively. However, these debt relief services have some negative effect as well. A consumer needs to consider the impact that any relief program will have on their credit score.
Debt relief types:
All debt relief programs effect differently on a consumers credit score. You can find a lot of commercials on the internet and even on the television where relief companies advertise that they can relieve you of your debt problems, however they do not specify what they will be doing for you. Some help you in getting a debt management plan where you can get a new affordable repayment plan from you creditors. Some companies help you in getting a debt settlement with your creditors in which you will only have to pay a part of the total debt and your debt will be closed with that creditor.
Effect of Debt management Plan:
A debt management plan has minimum effect on a consumers credit score. This is a legal method in which you pay off your debt with a new payment plan and a new lower interest rate. In case the consumer has only gone for a credit counselling then it does not have any effect on the credit score. If you have been proactive to pay off your debt in full and your creditor wants to give you a break on the interest then your credit score will remain unaffected.
Debt settlement:
If you have chosen settlement of debt as your debt relief option then you would have missed out on a few of payments because the creditors do not entertain settlement option unless the consumer is seriously behind payments. You payment history constitutes 35% of the credit score. Hence a debt settlement along with late payments might bring down your score by approximately 125 points. It will stay on your record for the next 7 years.
With these relief options you will be eligible to get credit for some time. However, a debt management plan has a stricture that you cannot obtain additional credit while you are enrolled in the program. This would mean that you will be unable to open new store accounts or take any new loan. Once you have completed your debt management plan with all payments made at the right time you will again be eligible for credit as it will have a minimal affect on your credit score.
