Effects of Credit Card Settlement on your Credit Score

Overview:

A credit card settlement is a deal between the customer and his credit card company wherein the former agrees to pay back a part of his debt. Card companies normally agree to settle the amount because this is the most effective way of getting cash and closing accounts. However, this transaction is bound to have an adverse effect on the card holder’s credit score.

Credit Score Impact:

Although a credit card settlement will help you get out of debts, but it will plummet your credit score. In fact, according to financial experts, the effect of credit card settlement is as severe as bankruptcy. The score can drop very drastically and will portray you as a “Bad Investment.” This will make it very difficult for you to secure loans and cards in the future.

The Benefits:

Though credit card settlement will have a negative impact on your credit score, it still offers a few benefits. If your score is not good, then setting a delinquent account will help you clear other debts and create a better score. Apart from this, the direct settlement with the credit card company will stop the account from going to collections.

Considerations:

The following needs to be considered before opting for a credit card settlement:

  • Credit card companies entertain settlements only if your account is delinquent.
  • If you are one of those who makes minimum monthly payments, then you cannot opt for the settlement.
  • Consider the fact that a delinquent credit card will in itself lower your credit score.
  • Settling a delinquent credit card account will, in fact, have the less grave impact than leaving it open.

Time Frame:

The aftereffects of credit card settlement will negate with passing time. According to MSN Money, “CIBIL gives more weight to recent accounts than old pending accounts.” Hence, if you wish to settle an old pending account and choose to adopt healthy credit habits, then your score is bound to develop gradually.

The above-stated are all the facts related to credit card settlement. Please read them carefully and opt for a move that best fits your situation.

Updated: November 29, 2016 — 12:51 pm

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