Debt Consolidation On My Credit Report? How Will It Affect Me?

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Published: 13th August 2012
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Consumer debt is a significant worry for many Americans. If you find yourself often worrying about the amount of debt that you carry, then debt consolidation may be the right choice for you. Before considering a debt consolidation program, however, it's important to know how employing a debt consolidation or debt settlement company will affect your credit score and report. The first and best place to start your search for debt settlement is by requesting a copy of your credit report from the three main credit reporting agencies. Illinois residents are entitled to one free credit report annually from each of these consumer credit reporting agencies. By keeping the initial copy of your credit report and comparing it to later versions, you can ensure that any settlements being made on your behalf are properly noted and that your accounts are noted as being paid.

Not all debt consolidation companies are equal, and there are many different methods used to help consumers ease their debt burden. Many debt relief companies prefer to consolidate a consumer's debt into a larger single loan. While this can allow consumers to quickly clear up many different past-due debts, the consumer is still left owning a large amount to the debt consolidation company. The more popular, and often better, solution is debt settlement.

Debt settlement can be an ideal solution if you owe a large amount of unsecured credit card debt. Typically, credit cards and medical bills are two of the most common debts that are settled. Often, the larger amount that is owed, the higher percentage that you can save by debt settlement. This is because a company would rather have a much-reduced amount that is considered "paid-in-full" rather than having an account on their books that is constantly late or in default. By agreeing upon a smaller payment, than paying them in full, you can save a great deal especially in interest and penalties. A debt settlement company will negotiate directly with the company to whom the money is owed, often saving Illinois consumers a large percentage on the amount owed. However, since the debt is being settled for a lower amount than is owed, the affect of debt consolidation on a credit report history will be temporarily negative.

While at first glance your debt may appear to be paid in full, a more thorough examination of your credit report will reveal that the debt was settled for significantly less than was originally owed. While this can negatively affect a credit score in the short-term, over time your score will improve dramatically. Although the exact formula used to calculate a credit score is kept confidential, many experts preach that 35 percent of your credit score is determined by regular timely payments.

Because of how debt settlement works, your credit score will generally decrease slightly, then improve very quickly. Because the very heart of a debt settlement plan is that you as the consumer will pay the creditor immediately. This will leave a zero balance on each debt that is settled. This method drastically lowers the debt-to-income ratio that appears on the balance sheet of your credit report, thus making you more attractive to lenders over time. This can make it significantly easier to apply for consumer credit in the form of credit cards, mortgages, or lines of credit.

If you feel like you're in over your head in debt, and you're looking for help in getting out of debt, it's often a good idea to allow a third party to negotiate your settlements for you. Since they are neither emotionally or financially tied into your own debt, they can negotiate in good faith for you. Speak with a debt settlement counselor to start the process of getting out of debt and taking control of your financial well-being.

Find the best online debt consolidation and settlement services through negotiation that might help your situation. To find out more information about our credit debt assistance and how it can help you, visit our site today.

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