Settling debt is generally a bad decision when trying to improve yourcredit score. But there are times when you will actually want to use debt consolidation or a debt settlement in order to improve your credit score.

Can debt consolidation improve my credit score?

The best way to improve your credit score is to pay off all of your debt as soon as possible. However, there are times when paying off your debt is impossible and you find yourself struggling with your high interest rates and multiple monthly payments, causing you to get behind on your bills. Under these circumstances, debt consolidation can actually improve your credit score. If the debt consolidation company responsibly makes your monthly payments, your debtors will report your accounts as in good standing, which will slowly build your credit score.

When looking at your credit score, creditors are more interested in whether you pay off your debt than exactly how you pay it off. When you are frequently missing payments, credit consolidation is the best option.

Can debt settlement improve my credit score?

Debt settlement does not have as much of a positive effect on your credit score because the debt is often reported as being settled instead of being paid in full. However, there are times when debt settlement will be the best option. If there is no way that you will be able to pay off all of your debt, but you will be able to pay off a portion of your debt, settling the debt will be better for your credit score than ignoring it.

Debt settlement companies are often able to negotiate lower interest rates, making it possible for debtors to pay off debt much more quickly. Debt settlement companies often have close relationships with creditors and are more willing to negotiate with them than with debtors that they sometimes view as irresponsible.

Starting the debt settlement process

When choosing to settle a debt, make sure that you know which types of debt you are able to settle. For example, it is impossible to settle student loans. Generally, choosing a debt settlement company is wiser than trying to settle debt yourself, since you might not be able to receive as low of an interest rate and some debtors will not want to negotiate with you at all.

Regardless of what you use, the act of settling debt will have a negative short-term impact on your credit score. This can indicate to future creditors that you are a risk. But as time progresses and you establish that you will pay your debt obligations on time, creditors will be more willing to offer you loans in the future. In the long term, debt settlement is the fastest way to begin repairing your credit score if you are unable to pay it off any other way.

Regardless of which option you choose, Franklin Debt Relief is the most trustworthy source for credit counseling. They not only help you get out of debt, but also help you make life changes necessary to stay out of debt.