You can use debt mediation, also known as debt settlement, to negotiate a lower full payment on money you owe. You'll settle accounts with creditors for a percentage of your debts. How low your score will go if you use debt mediation depends on various factors, including how much you owe, what your creditors do, how much credit you have available and how long mediation takes.
During debt mediation, you work with your creditors to come to an agreement on debt pay-off amounts. The idea is to settle with your creditors for less than what you actually owe. Creditors often accept less because they'll at least get something, whereas they might come up empty-handed if you file for bankruptcy. You will stop paying on the accounts you want to settle during this time to free up more cash. You'll go back and forth with each creditor during negotiations to come to a number you both can live with. Once you've agreed on an amount and have it writing, you pay the creditor. The creditor closes the account and reports it as paid to the credit bureaus. Unfortunately, not all debt mediation will go this way. You'll find some creditors don't want to negotiate and may speed up collection efforts or sue you for the debt.
Your payment history and the total amount of debt you have affect your score the most. The credit bureaus also consider your credit history length, credit types and the amount of new credit you have. Payment history includes how many past-due accounts you have and whether you have any public collection records, such as a court judgment against you from a creditor. Total debt doesn't just cover how much you owe. Credit bureaus include other factors, such as how much credit you have available versus how much you've used, when calculating your score.
Debt mediation usually lowers credit scores because you've stopped paying the creditors you're dealing with. These creditors still report the overdue payments to the credit bureaus. As the creditors may add late fees and other interest, your total debt may go up too. Your debt-to-credit limit ratio slides. The situation is worse if you have creditors who've escalated collection efforts or sued you in court and won, since a judgment against you lowers your score.
You can hire a company to handle the debt mediation for you if you don't want to deal with your creditors, but you'll have to pay for the service. Research any mediation companies you're considering thoroughly before selecting one to avoid scams. No legitimate mediation company will claim to have government programs or guarantee positive results. While your settled debts are paid off, the creditor might report this information to the bureaus in a way that doesn't help your score, such as "settled for less." Try to get creditors to agree to reporting the debt as "paid in full" as part of your mediation agreement.