How Long Does It Take for Debt Settlements to Reflect on Your Credit Score?

Settling a debt can help you save a significant amount of money, but at the same time, it can hurt your credit score severely. Your score may not be affected immediately after you settle the debt, however. The amount of time that it takes to reflect on your credit report can vary, depending on the creditor.

Debt Settlement

Debt settlement is a process in which you negotiate with one of your creditors to close an account. You pay a lump sum of money and the creditor then closes your account and stops any collection actions. The creditor accepts less than what you owe and the writes off the rest of the debt. At that point, the creditor may report the debt settlement to the credit bureaus and show that your account is closed.

Credit Report Update

When the debt settlement will appear on your credit report depends on the actions of the creditor and the credit bureau. Many large creditors update their accounts with the credit bureaus every month. Other creditors may update with the credit bureaus only once every 90 days. Credit bureaus generally update their accounts once every month, or in some cases, once every 90 days. It is at this point that the debt settlement information will appear on your report.

Credit Score Changes

Once your credit report is updated, your credit score also will be affected almost immediately. The debt settlement will show up in the notes section next to the account you settled. Your score, which is calculated with a specific formula, will fall by a certain amount. Once the information is added as one of the variables in your report, your score is updated.

Negotiating Payment History

In some cases, you may be able to avoid having your credit history damaged by a debt settlement. When you settle your debt, the creditor may be willing to report the settlement in a positive light on your credit report. For example, rather than reporting the account as "settled," the account can be reported as "paid." You must discuss this during the negotiation phase of the process if you want to avoid damage to your report.