Debt negotiation is a useful tool for consumers who are seeking a way to resolve outstanding debts or bring delinquent accounts current. If you're considering debt negotiation, you should first be aware of the potential impact to your credit score.
Short Term
Part of the debt negotiation process requires that you default on the debts you wish to negotiate. With the first missed payment, your credit score may drop as much as 100 points.
Long Term
Negative information can remain on your credit report for up to seven years, although the weight of this information may decrease as the accounts age.
Reporting
Negotiated debts that are reported as "paid in full" rather than "settled in full" are not as damaging to your credit score.
Time-Barred Debts
Time-barred debts are those that are deemed uncollectible due to their age. Negotiating payment for a time-barred debt can negatively impact your score, as paying the account renews its date of last activity.
Recovery Time
It may take your credit six months to two years to recover from the impact of debt negotiation, depending on the type of credit you are able to obtain and how wisely you use it.
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