How long will debt negotiation stay on my credit report?
Well there is some confusion about this issue. Enrollment in a debt settlement program, unlike consumer credit card debt counseling, is not reported to the credit bureaus at all. Credit cards included in a debt counseling service is reported as “enrolled in a debt management program”.
So how is debt settlement listed on your credit profile then?
When a consumer is enrolled in a settlement program, the debt is reported as being past due until it is negotiated and settled. Once the account is settled it will be recorded as a satisfied debt that was “settled”, “settled in full”, “settled for less than the full balance”, or in rare cases, “paid in full.”
How can I get my account listed as “paid in full” with the credit bureaus?
That is a rare occurrence usually only reserved when a) paying a past due account could have more adverse consequences on your credit than positive ones and/or b) when the debtor has no incentive to pay the debt other than a moral one.
When could paying off a debt have a more negative effect than continuing to let it go unpaid?
When an account is severely past due (3 years or more), by paying the account you will the activity on the account more recent. In terms of your credit score, the more recent an item is on your credit report, the more heavily it is weighed. When it comes to your credit rating, time heals everything. This being the case, some creditors will offer to wipe out any delinquent or negative payment histories to give the debtor more incentive to settle. If not the only benefit for the consumer is not having to worry about the creditor pursuing legal action to collect the full balance.
When does a debtor have zero incentive to pay back a debt other than a moral one?
This is when the debt is both severely past due and past the statute of limitations in the state where the credit was extended. A statute of limitations for debt is the time period after one has become delinquent on payments before a creditor can pursue legal action to collect the debt. In most states the statute of limitation usually lasts for four to ten years.
How much will my credit score drop in a debt settlement program?
It is impossible to say exactly what will happen to your FICO score because it depends on so many variables. For example what is your credit score now? If it is high, debt negotiation could cause a precipitous decrease. While if you credit rating is already low from collection accounts or charge offs, the decline will be far less severe.
How quickly can I rebuild my credit afterwards?
Again, this is difficult to pin point because it depends on a lot of different factors like a) how aggressive you are in the steps you take rebuild your credit, b) what accounts you remain current with during the course of the negotiation process, c) the length of your credit history, and probably a whole slew of other factors that we cannot even fathom.
Why would the accounts you remain current with matter?
Think of this way: if you have ten accounts with outstanding balances, three of which are credit card debts that are included in a settlement program, you are in a much better position to be able to bounce back faster than someone who had to include all ten accounts into the negotiations.
Why would the length of my credit history matter?
This matters because if you have shown positive payment history for a very long time, except for the short period of time when you were enrolled in a debt negotiation program, you are in a much better position to rebuild your credit score than someone who has a short credit history, all or most of which was damaging or destructive from a credit standpoint.
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