How Debt Solutions Can Affect Your Credit

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If you are tired of being in debt and suffering from bad credit because of it, now is the time to do something about it. Waiting to take control of your finances will only delay you in becoming debt-free. There are many ways to get out of debt, including bankruptcy and debt settlement. If you want to choose the best option for your situation that will affect your credit the least, a debt settlement plan might be the best choice. Here are three things you should understand about debt solutions and your credit.

Your Credit Is Probably Bad Already

Credit scores range from 300 to 900, with 900 being the best credit possible. Your score is made up of a variety of different factors, but 30% of the score is based on the amount of money you owe. Credit reporting agencies typically look at the amount you owe compared to the amount of available credit you have, and this is how they factor in this portion of your credit score. If you owe a lot of money, it will cause your credit score to drop.

Your credit score is also calculated by looking at the late payments on your record. Chances are that if you owe a lot of money and are having trouble repaying it, you may have late payments on your credit report.

Because of these factors, there is a good possibility that your credit score is already bad. Using a debt solution may cause it to drop more, but this drop may not really matter. If you are already in a position where you cannot qualify for a loan because of your bad credit, it really wouldn't matter if your credit dropped more.

When you file for bankruptcy or use a debt settlement, you can expect your score to drop. The amount it drops will depend on what your current score is.

You Will Get a New Rating

In addition to having a score on your credit report, you also have ratings. These ratings range from R1 to R9, and R9 is the worst rating you can have. When you are current on your bills, your rating will be an R1, which is the best rating available. 

When you use a debt solution, your rating will change. An R9 rating is issued for a person that files bankruptcy. When you use any type of debt settlement plan, including a consumer proposal, you will get an R7 rating. An R9 rating will stay on your credit report for up to nine years, whereas an R7 rating typically stays for only three years as soon as the plan is completed.

During the time you have an R7 or R9 rating, you may continue to have trouble getting credit. Once the rating changes after the necessary time frame, your credit score will drastically improve. The best part is that you will not only have a good credit score, but you will also be debt-free.

Professional Help Is the Best Option

If you are still not convinced that using a debt settlement or bankruptcy would be helpful for you, you should carefully think about how you could do this on your own. Becoming debt-free is not an easy task, especially if you try to battle it alone. A lot of people find that it is easier and more effective to hire a company for help.

With a debt settlement plan, you will have to repay a certain percentage of the debt you owe. In bankruptcy, you will also have to repay part of your debt. If you would like to talk to a professional to find out what the best option is for you, call a company that offers debt settlements and solutions today.