Debt Consolidation Depot
Debt Consolidation & Financial Information Resource Center
February 20, 2004
Debt Negotiation impact on credit
(PRWEB) --We looked into debt negotiation and the impact this debt
service has on consumer credit rating. There is apparently a difference of
opinion on this subject. We discovered some debt negotiation companies that
claim negotiating accounts improves the credit rating. We also found those
that said debt negotiation causes serious negative impact into a consumer’s
credit rating.
We have confirmed that the act of negotiating past due accounts has a
positive impact on a consumer’s credit rating, particularly over the
long-term. The reason is that paid/settled accounts that are negotiated are
much better than unpaid past due accounts. For consumers with unpaid
delinquent accounts this makes negotiating a settlement either on their own
or using a debt negotiation service a superior alternative to either
ignoring the delinquent past due account or, considering the savings, paying
the past due account in full. Negotiating delinquent accounts does improve
the credit rating.
The dilemma lies with those consumers who have current accounts, and a good
credit rating Current accounts cannot be negotiated. It seems there is no
motivation on the part of the creditor to accept less than the full balance
on a current credit card account. Therefore, those with current accounts
must allow those accounts to be delinquent to negotiate which does
conclusively affect the credit score. Some consumers credit score is already
negatively impacted by the debt itself and in this case negotiation of the
accounts may be a better alternative than to continue making minimum monthly
payments for the next 30 years and still have bad credit.
Nevertheless, debt negotiation or debt settlement for people with current
accounts will probably have an adverse effect on the credit rating. Our
research indicates the consumer credit score is negatively affected by the
delinquency period. This occurs for two reasons. The account is late and as
the delinquency period extends (60, 90, 120 days) the way the account is
reported by the creditor to the credit bureau has a continuing derogatory
effect on the calculation of the credit score. Secondly, the amount listed
in the payment due column increases as past due payments stack up. If the
accounts are current but the credit score is low due to high balances or a
history of late payments, this is not an issue. Those with a high credit
score must weigh the negative impact on credit rating with the promise of
debt elimination for less than the full balance.
Once the accounts are resolved however the credit seems to improve. The
account balance and payment due is reported as zero. This has a positive
impact on the account and the credit. The history of the delinquency
remains, but the account moves from the current derogatory section of the
credit report, to the closed account section. As months pass this derogatory
history has less and less bearing on the credit score. Mortgage lenders
believe that after 12 months the accounts are given very little
consideration. It appears that provided all other obligations are paid in a
timely manner (House, car, other accounts kept current) that the effects of
the negotiation process are temporary.
If you are considering debt negotiation and you plan to hire a debt
negotiation company it is highly recommended that you choose a company that
meets state and federal guidelines and has a record with the Better Business
Bureau.
Submitted by: www.iGlobalFinancial.com
More debt research: http://www.iglobalfinancial.com/Research/Debt/
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