Debt Relief based on Your Credit Score

In basic terms, your credit score is like the Cliff’s Notes of your financial history and how good or bad you’ve managed it over the years.  Just about every adult in the US has a Fair, Isaac, and Company or FICO score.  As a data analytics firm, they the credit score range from 300 (rock bottom) to 850 (perfect).  This can have a huge impact on what you will qualify for in regards to debt relief options. FICO scores, ratings, and how they’re interpreted are as follows:

  • 300 to 579 =Poor, well below average
  • 580 to 669 = Fair, below average
  • 670 to 739 = Good, near or slightly above average
  • 740 to 799 = Very good, above average
  • 800+ = Exceptional, well above average

There are 3 major credit reporting agencies in the U.S., all of which report your credit score whenever you apply for a credit card, any type of loan, or mortgage.  Despite the fact that each of these agencies maintains your credit score, each one differs slightly from the other in the way they maintain those records.  Consequently, your credit score can vary based on the agency that a lender uses.

Are You struggling with Debt?

Over time, credit scores tend to fluctuate based on a person’s credit-related decisions.  Certain actions or non-actions can impact your credit positively or negatively.  So, you have to understand how your decisions can affect you from a financial standpoint.  If you’ve been reading this, chances are you’ve been struggling with a considerable debt burden and are looking for a solution.  So, when you’re trying to reduce that debt and keep the roof over your head, you’ll want to know how each of the different debt relief options that are currently available will impact your credit score.

Debt Relief Options

First and most important, if you’re not familiar with your credit score, you should be.  It forms the basis of the financial settlement that you will be eligible for. Otherwise, it won’t be possible to predict the impact one of these debt relief options listed below has on your credit score.  Here are the primary debt relief options that a person might consider and the impact it could have on their credit score:

Bankruptcy – the immediate impact is severe damage to your credit while a very slow recovery is the long-term impact

Debt negotiation or settlement – same impact as filing bankruptcy

Debt Management Plans – the immediate impact is moderate and can be positive or negative while the long-term impact could be minimal

Debt consolidation – the immediate impact is relatively small and can be positive or negative while the long-term impact could be minimal

Ironically, to rebuild your credit, you have to have credit, so paying off all your debt and never having any again is not necessarily ideal either.  Although we would all enjoy never owing anyone, not having credit will hurt your score. Thus, it is important to pay off debt as quickly as possible and look for ways to rebuild your credit scores.