Do debt relief options affect your credit score?
There are many approaches which one can opt for debt relief and there are a few things which one should keep in mind here. One third of the credit score is made up of the debt you have and when you pay off the debt, especially when you pay off the credit cards, you can see improvement in some components that comprise to make your credit score.
The credit scores up and down situation is different for everyone:
The freedom debt management program can help you pay off the debt but it can affect the credit score to a great extent. If you are following an approach to keep yourself debt free, then it is impossible to gauge its impact too. The up and down of the credit score depends on varied factors or components.
If you have been making the payments on time since the beginning and suddenly you file for bankruptcy, then the credit score will be affected deeply. It will drop more than someone who had always been delinquent. There are many freedom debt management options which you can choose, but they may affect your credit score differently than others.
Taking help of a debt settlement company:
Whether you choose to pay high interest rate on the balance or clear low balance, the approach won’t drop down your score till the time you are making minimum payments on the cards on time.
In case you are not able to make payments and taking the freedom debt management plan where you will make the payment to the company and the company will pay on your behalf to the creditors, then the score may be affected in several ways. Some creditors can report to FICO that the account is being paid by the agency. FICO has ignored this point for now to impact the credit score but in case there are late payments or high balance on the account, then the score will be affected.
If with the debt settlement company, you are able to bring your account to current, then its beneficial. Once you make three on time payments, your creditors will re-age your account. Therefore, your credit report will not state that you are behind.
Signing up for debt management plan will affect the score. In case you closing one account and paying the other account like mortgage on time, then it will not have more impact on the scores. These scores will change after sometime. You can therefore take a secured card, keep low utilization on that card and enjoy a good score.