Credit Impact of a Debt Settlement Program

No matter how you decide to handle your debt, it’s likely to have a significant impact on your credit. So what happens to your credit if you consolidate your debt with a debt settlement program? There are no guarantees, but here are some things to keep in mind.

Missing payments hurts

Nearly all debt settlement programs require you to discontinue making payments to your creditors while funds are accrued for your eventual settlement offer. Payment history is the number one factor in nearly all major credit scoring models. This means that your credit score is likely to be hurt significantly by the months of missed payments required for most settlement programs.

Closing old accounts hurts

The older the age of your open credit accounts, the better. Debt settlement usually requires that your credit accounts become severely delinquent – at which point they are very likely to be closed. Those accounts closing could lower the overall age of your accounts and drop your score slightly, although the impact would likely be minimal compared to the damage done by the accounts becoming severely delinquent.

Repaying less than the full amount hurts

The primary benefit of debt settlement is that you won’t repay your creditors for the full amount owed. This sort of “less than full balance” repayment may be reported by the creditor and may be factored negatively into your credit score.

Settled is better than unpaid

While having accounts listed as “paid settled” may be less positive for your credit than having accounts listed as “paid in full”, it’s still much better than having accounts listed as “unpaid.” If you can’t repay your debts under normal circumstances, it may be better in the long run to take the credit hit of a settlement and then begin rebuilding your credit with a (mostly) clean slate.

  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.