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Debt settlement programs can provide significant savings on high-interest debt. These services employ experts negotiate your balance with credit card companies and others to whom you owe money, in an attempt to settle your debt for less than you owe.
But the downside is that if you go this route, these programs can negatively impact your credit score. For starters, the debt settlement process typically requires you to make monthly payments to the debt settlement company instead of your creditors, resulting in late and delinquent payments on your credit report. And after the debt is paid off, it typically appears on your credit report as settled rather than paid in full.
But if you’ve gone through a debt settlement program, what are the steps you can take? improve your credit score? Here’s what you need to know.
Contact a credit repair professional now.
How to Improve Your Credit Score After Debt Settlement
Here are a few things you can do Improve your credit quickly After you have completed the debt settlement process:
Contact a reputable credit repair expert
Credit repair companies generally employ experts with in-depth knowledge of credit reporting rules. These companies may be able to contest incorrect items on your credit report and in certain cases have them removed. They can also provide advice on how to use credit properly to improve your score over time.
Discover how easy it can be to improve your credit score today.
Get a secured credit card
Secured credit cards can also provide you with a way to build a positive credit history after debt settlement.
“You can get your credit back on track with a secured credit card,” says Dawn-Marie Joseph, founder of Estate Planning & Preservation, a company that helps consumers with financial needs and estate planning. “Many banks and financial institutions will offer these types of credit cards.”
“Secured credit cards require a refundable deposit, which serves as your credit limit,” says Michael Broughton, founder and CEO of credit-building app ALTRO. “By using the card responsibly – by controlling your spending and paying on time – you can demonstrate to lenders that you are creditworthy, gradually improving your credit score.”
And if you use the credit card account responsibly long enough, you may have the opportunity to upgrade it over time.
“Additionally, many card issuers offer options to upgrade from a secured credit card to an unsecured credit card with a higher limit, which offers even more credit options,” says Broughton.
Ensure a good credit utilization ratio
When using your new secured credit card (or any other line of credit you may have access to), it’s important to pay close attention to how your balance compares to your credit limit. The amount of credit you use compared to your credit limit is known as your credit utilization ratio and can have a significant impact on your credit score.
According to Equifax, lenders generally prefer you keep your credit utilization ratio at or below 30%. This means that you are only allowed to use about 30% of your credit limit at any time.
Let’s say you have a $1,000 credit limit on your secured credit card. About 30% of that limit would be $300, so you should keep in mind that the credit card will max out once you spend $300 on it. If you have a balance that is higher than 30% of your credit utilization, it can negatively impact your credit score.
Pay your bills on time
Ultimately, you need to consistently pay your bills on time to achieve a good credit score.
“Always remember to continue paying your bills on time,” says Joseph.
And that includes more than your new secured credit card. You must pay all your bills on time. After all, if you leave an invoice too far behind, it could be reported as overdue to the credit bureaus. And delinquent accounts are the last thing you want on your credit report as you rebuild your credit after debt settlement.
it comes down to
Debt settlement can hurt your credit score, but it’s something you can get started with rebuild your credit by following a few simple steps. You may want to start by contacting a reputable credit repair service. It can also help to get a secured credit card and keep your balance at 30% of your credit limit or less. And if you have other lines of credit, make sure you use a maximum of about 30% of the available credit for them as well. That way, you can start your credit building off right – and then continue to build good credit over time by paying all your bills on time.
