How Does Credit Card Settlement Affect Your Credit Score?

Credit card settlement refers to the type of debt relief that might work for you if you have used the credit card to meet financial requirements during uncertain times. Availing money from credit cards even affects your credit score. You must look for debt relief options to maintain your credit score. Because you will want to work on rebuilding your credit rating once your debt problems have been resolved. Keep scrolling through to know the details regarding credit card settlement and its importance.

What is Credit Card Debt Settlement?

Credit card settlement is the process of proposing to pay back half of your credit card dues in just one go to your creditor, and the proposal gets accepted by a creditor. There are several reasons for credit card settlement, ranging from financial emergencies to budget constraints. Once the settlement is fully processed, the credit card account is closed.

Credit Card Settlement

Does Credit Card Settlement Hurt your Credit Score?

A credit score shows the data of your credit history. It is a score that goes up and down according to your debt applied and repayment capability. It helps lenders to decide whether the borrower is reliable or not. If your score is high, i.e., above 750, it means that you will likely repay the money you borrowed. Because a credit card debt settlement writes off a portion of what you owe, your credit score will go down because you didn’t fully repay all the borrowed money. Therefore, a credit card settlement is equally damaging to your credit score.

Debt Settled is Better than Debt Unpaid

Not paying back the amount you owe will indeed negatively affect your credit score. Whereas a debt settlement under specific circumstances provides a positive notation to your credit score. If the payment for the credit card has not been made as agreed for at least 6 months, this gives the debts an “unpaid” notation.

Through debt settlement, you pay a portion of what you owe. Once a settlement has been fulfilled, you can request that they note that the debts have been “settled” . Knowing that you have made some payments is better than you making no payments and leaving a balance owing. This won’t improve your credit score by much in the short term, but as time passes, it will.

How Long will Credit Card Settlement Affect your Credit Score?

The time interval of debt settlement on the credit score depends upon who negotiates the debt settlement with your creditors. If you negotiate yourself, then the settlement notation will remain on your credit report for 6 years from the date your payment is processed. However, the credit card settlement agency has special arrangements with the credit bureau companies. We can instruct that the settled debts be removed from your credit report 2 years from when your payment is processed. 

Credit Card Settlement Process

To settle the credit card debts, one needs to follow the below-mentioned steps: 

  • Reach out to a credit card settlement agency and explain the inability to repay your credit card bill. Here, you will be required to negotiate with multiple parties to settle the credit card payment.
  • The cardholder will have to offer a lump sum figure or file for bankruptcy to show their situation so that the issuer and debtor can arrive at a lump sum figure credit card settlement amount.
  • The issuer can also reschedule the settlement of credit card payment to waive off the interest or accept the lump sum amount, depending upon their judgment.

Credit card settlement is a form of debt relief. There are numerous options available to consider before making a settlement decision. For the credit card settlement procedure in India, you can take help from Freed. India’s first debt relief platform can help you to reduce your outstanding debt by up to 50%. In addition, it runs a Creditor Harassment Protection Program (CHPP), which offers pre-litigation assistance to all FREED customers by offering them protection against unlawful collection practices from creditors and their associates. So get your credit card debt settled by Freed now!

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