If you settle your debts, your credit score decreases. This is because you pay a small portion (often 35%-40%) of the amount owed. If you don’t pay your creditors for several months, you credit score may ruin. However, if you undertake debt settlement programs, primarily your credit score will get a hit. But you can enroll in a credit repair program within a few months once your debt settlement program is over.
Just follow these 9 simple steps to improve your credit score after a settlement:
1. Check the status of accounts on your credit report:
One you settle your outstanding debts, check if your credit report say “Satisfied” or “Settled” instead of “Unpaid” or “Delinquent”.
2. Negotiate the account status with creditors:
If you want to lessen the negative effects of a debt settlement on your credit report, negotiate a ‘Pay for delete’ agreement with your creditors. If you do so, the creditor would remove all information about the account from your report after you’ve paid it off. You may further ask your creditors to update your account as “Paid in Full’.
3. Apply for a gas/department store card:
Though you have a debt settlement on your credit report, you may easily qualify for a gas/ department store card. Once you able to repair your credit, ask to raise your credit limit.
4. Keep some credit accounts open:
Don’t close more than 2 accounts every 6 months. If you close several accounts at a time, it may severely damage your credit score. Keep at least 2 of your older accounts open as older credit accounts help in getting a good credit score.
5. Open a savings account:
Try to put a certain amount of money each month into a savings account. This will indirectly help you avoid late payments on your bills. You may also use the savings account for a loan or secured credit card purposes.
6. Repay the debts you have not settled:
Pay off any debt, which you can’t settle such as student loan or mortgage.
7. Get a secured credit card:
If you have a good credit history, it will be easier to receive a secured credit card. However, if you make use of a secured credit card, try to make the minimum monthly payments within the due date.
8. Stop using payday loans:
Payday loans may serve you in emergency financial crisis, but you may be highly penalized if you miss a payment. Further, payday loans carry lofty interest rates, APRs, etc.
9. Join a credit union:
If you are qualified to join a credit union, do as soon as possible. If you are a member of a credit union, you can easily get loans and on reasonable rates. Further, joining such trustworthy unions also boosts your credit score.
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