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Does debt relief hurt your credit score?

Keep your account balance below the credit limits to qualify for debt relief

by Luis O., CFA, FRM
6 December, 2022
in Credit Card
Does debt relief hurt your credit score?

We will not always have a good financial situation, and sometimes it won’t be easy for us to pay our credit card bills, so perhaps at some point, we may be forced to opt for debt relief. In these cases, we may wonder how this could affect our credit score, and today we have come to talk to you a little bit about it.

Contents

  • What will debt relief do to my credit score?
  • Debt Settlement vs Bankruptcy
  • How can I rebuild my credit score after opting for debt relief?
  • What is considered in my credit rating?

What will debt relief do to my credit score?

YouTube video

Before placing a debt relief order, you need to remember that it will negatively affect your credit score and may make it difficult for you to obtain new credit.

Scores are handled as creditworthiness and depend on statements, payments made on time, the number of payments due, terms of the agreement, and credit limits.

By opting for debt relief, you will not be paying the debt in full, so your credit score will be affected, and you will become a delinquent debtor.

If debt relief is your only alternative, you can try to work out an agreement with your creditor to end on good terms. This will not prevent damage to your credit score, but it may help you with future credit applications.

Debt Settlement vs Bankruptcy

Two ways to get out of debt are bankruptcy or debt relief. Both will negatively affect your credit score, but debt relief is the better option.

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One of the main reasons it is recommended to choose this option is because the score will decrease by 50% less compared to bankruptcy, and the debts are of short duration. Thus, it is easier to increase the credit score again.

On the other hand, by filing bankruptcy, your future employers or lenders may find out about your case because this information is public knowledge, which could affect new job or loan applications.

On the other hand, electing debt relief demonstrates that you have tried to repay your debts in every way possible. This process usually takes 2 to 4 years and could save thousands of dollars.

But, by filing for bankruptcy, the process can take more than four years, and you will not be able to get any loans.

How can I rebuild my credit score after opting for debt relief?

The best way to rebuild your score is to make regular and timely payments. This is because 35% of your score is based on the timeliness of your payments.

Another way to improve your credit quickly is to keep your account balance below 30% of your credit limits.

Use credit cards on a consistent basis. Otherwise, you will not be able to improve your score. Don’t let balances and maximum charges accumulate.

Also, choose a small credit account that you can pay off monthly to avoid late payments as much as possible. Credit scores take approximately 6 to 24 months to improve, depending on how low your score is after settlement.

What is considered in my credit rating?

Before approving any loan or credit, lenders and banks look at the applicant’s credit reference file to ensure reliability.

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The loan risks are based on your credit rating, mainly affected by bankruptcy filings, bank account management, and people financially linked to the user.

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    • Jobs that don’t require college
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      • Behavioral questions and answers for interviews
      • Technical Interview
      • Sample thank you email after interview
      • You were fired on an application
    • Job Application
      • Kohl’s Job Application
      • Baskin Robbins Hiring Age
      • Subway Hiring Age
      • Target Hiring Age
      • Apply to hobby lobby
    • Job Profiles
      • Physiologist
      • Golf Caddy
      • Environmental Consultant
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    • Credit Card
      • Maurices Credit Card Payment
      • How can I pay my Verizon bill?
      • How to Pay my TJ Maxx Credit Card?
      • How To Apply For Dicks Sporting Goods Credit Card?
      • How Suddenlink bill can be paid?
      • How to make Furniture Row credit card payment?
      • Bed Bath & Beyond’s Credit Card Payment Process
    • Netspend Atm
    • Trial deposit Amazon Creditbuilder
    • Transfer Money From EDD Card to a Bank Account
    • Credit online shopping
    • Transfer funds with Routing and Account Number
  • Student loans
    • Increase Total Loan Balance
    • Bad Credit Loans Urban BCL
    • Reduce Total Loan Cost
    • Canceling Student Loan Debt
    • Unsubsidized Student Loan
    • Borrow money from a millionaire
    • H&R block Emerald Advance
    • Chevy offer 0 Financing
    • Days Mortgage Approval
    • Mortgage on 1 million
  • Insurance
    • Subscriber Id Insurance Card
    • United American Insurance Provider Portal
    • Unregistered Vehicle with Insurance
    • Home Insurance Claim Adjuster Secret Tactics
    • Agi renters condo insurance
    • Walgreens accepted insurance
    • Dentist that take caresource
    • Redpoint county mutual insurance company
    • Insurance walgreens accepts
    • Cricket wireless insurance claim
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    • Stop paying child support
    • Home depot health check
    • Beat contempt of court for child support
    • Medical Schools that don’t require mcat
    • Social security Recipients Stimulus check
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