How Credit Card Debt Workout Affects Your Credit

A credit card debt workout entails paying a percentage of your credit card debt in a lump sum instead of the whole thing. Settling your account this way can affect your credit. It all depends on the status of the debtor’s credit before the debt workout.

Credit Card Workout Imagine that credit report scores run on a scale of one to 10, one being the best. Only ranks of one and two are good enough to walk into most local banks to get a loan or credit card. Someone who has done a credit card debt settlement would be considered near a six on this scale immediately after the pay off of it.

For someone who started as a one or two this would be a dramatic devastation of their credit. Anyone with good credit should consider the debt workout as an option very seriously before undertaking it, as his or her credit will be essentially destroyed.

On the other hand, if an individual already shows multiple accounts on their credit report that have been charged off by creditors they may already have a credit score of approximately nine on a scale of one to ten. For these people settling the charge off accounts through debt settlement would actually improve their credit. This does not mean it will make their credit good, it just means it will improve it from very very bad to only plain bad.

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Credit card companies tend to run occasional credit checks on their customers, often raising rates if they notice any activity that, in their opinion, makes the customer a higher risk.