How does debt settlement impact my credit score?

Debt settlement has a variety of impacts on your credit score. When you settle a debt, your credit report will typically show that you have been able to pay off your debts by the amount of the settlement, rather than the full amount owed. This could have a negative impact on your credit score and could stay on your credit report for up to seven years. Also, if you negotiate a lower amount than what you owe and the creditor agrees to accept the lesser amount, the creditor may report the unpaid debt to the three major credit bureaus. This will negatively impact your credit score and will remain on your credit report for seven years after the collection agency reports it. Further, once you have settled your debt, the original creditor may send a 1099-C form to the Internal Revenue Service, which states that the full debt amount that was forgiven or settled is considered additional income to you. This means the IRS could include the amount as taxable income on your income taxes. Lastly, the creditor may issue a charge-off. This is a declaration by the creditor that the debt is considered uncollectable. This can also have a negative impact on your credit score. In summary, debt settlement can have a negative impact on your credit score. It is important to understand the possible consequences before entering into a debt settlement agreement.

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How does debt settlement impact my credit score?

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