Does Debt Settlement Hurt Your Credit Score?

Major Advantages of Debt Settlement One of the biggest myths that is constantly perpetrated in this financial world has to do with debt settlement. There are lots of ways to get out of debt, and some of them are better than others. Many individuals believe that using a debt settlement company will have some sort of overriding negative effect on their credit score. The fact of the matter is that debt settlement is not all that bad for your score, and in many cases it can help bring your score up.  Understanding this process requires one to understand exactly how credit scores are formulated. Your credit score is made up primarily of your payment history and your amount of debt owed. Those two things combine to account for 65% of your credit score. What many people don't realize is that their payment history only reflects payments from the last 24 months. After two years, the payment history portion of your report falls off and no longer impacts your score.  But what will impact your score is a huge amount of revolving debt. If you are continually keeping thousands of dollars worth of debt and only paying the minimum, then you are starting a cycle that is very difficult to change. Around 30% of your score is determined by how much debt you owe, so it is in your best interest to get rid of the huge amount of credit card debt. When companies allow you to settle your debt, this is portion of the credit score will be in your favor once again. You will see some negatives from the settlement, but after two years that will drop off and your credit score can soar.