Dangers Of Debt Settlement: California Consumers Risk Free Fallin’ FICO Scores

Dangers Of Debt Settlement: California Consumers Risk Free Fallin’ FICO Scores

When thinking about the potential benefits to be found within debt settlement California consumers should be aware that there are also several drawbacks also contained within the debt relief method, and some borrowers are inevitably going to find that the disadvantages rather significantly outweigh the hope of unsecured bill reductions.  For one thing, the resultant negative marks on credit reports – an unhappily inevitable consequence of the process, especially during the initial stages – wouldn’t be suitable for many consumers in the position of trying to maintain a comfortable existence for their families while trying to eke out a living paycheck to paycheck.  Are you planning to apply for home mortgages or student loans within the next two to three years?  If so, you might well have to rethink about some of your presumptions about debt settlement negotiations, regardless of how seemingly perfect the approach may appear.


The deleterious credit report related repercussions of debt relief through debt settlement (California, more than most states, prizing credit reports) could even dissuade households worried about borrowing money in the immediate future for such relatively minimal expenses as water heaters or used automobiles that nevertheless remain outside of the domestic budget absent external assistance.  By the culmination of proceedings – once you have fulfilled the remuneration of the negotiated down credit card debt accounts according to the carefully stipulated agreement with banking representatives – the credit agencies should change the designation of the unsecured loan balances formerly left to default as “settled”.  However, that’s still somewhat less impressive than “paid in full”, and the scoring models assigned to every Golden State citizen’s credit report will indirectly reflect the partial level of compensation.


No matter that the debt management plan was mutually acknowledged by both the lenders and borrowers (or their proxies in debt settlement), California settlement clients must come to grips with the strong likelihood that their FICO points shall drop precipitously.

To make matters some degree worse, consumers who have managed to maintain reasonably untarnished credit reports and resultant credit scores despite outstanding credit card debt totals well beyond their capacity for repayment in full would be judged poor candidates for the debt settlement companies worried about the success rates.  That’s right, as tragically ironic as it may seem for those heads of household who’ve labored long and hard and against all odds to keep their FICO numbers artificially buoyed, the firms specializing in this approach toward debt relief would be wise to respectfully decline to work with borrowers madly juggling accounts to prop up their scores above seven hundred or even six hundred.


As a matter of fact, now that the newly proposed debt settlement California State legislative restrictions seem all but assured to pass into law by the start of 2012, even the firms that in the past would have perhaps taken a flier on the shakier settlement arrangements will be loathe to spend the time on negotiations for candidates trailing an excellent history of repayment given the proposed restrictions on fees assessed.  For businesses defining their debt relief efforts as “debt settlement”, California law shall soon disallow any monetary charges levied on consumers prior to actual reduction of credit card debt totals, and the lenders are considerably more reticent about shaving even a cent from the balances owed unless they fear the borrowers are barely able to avoid bankruptcy following months without communication.  Under certain scenarios, ignoring billing statements and letting credit scores flounder may be worth the risks, but we cannot pretend this would be an easy choice for any Californian consumer.

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