Debt settlement is a great way to help you get rid of your debt. However, it also comes with some serious consequences. Chances are good that your credit score is going to be much lower than it was before. Creditors will also mention the debt settlement on your credit report. Therefore, you are going to have to take steps to repair your credit after the settlement. What steps should you be taking?
Get As Many Lines Of Credit As Possible
Lenders love it when you have a lot of available credit. It makes you look like you know what you are doing when it comes to managing your debt. Applying for as many credit cards as possible will work to increase your credit score.
You should probably start out with a secured line of credit. Secured credit cards are credit cards that are secured with a deposit. This means your line of credit is guaranteed. Use the first card to establish that you are able to make payments on time. All other cards should be used strictly as a way to make you look better on paper.
Pay Your Bills On Time
Another easy way to repair your credit after a settlement is to pay all of your bills on time. Even small bills like your water bill can impact your credit. Keep in mind that even bills that do not show up on your credit report may still be included when determining your score.
Paying your bills on time is so important because payment history makes up a third of your credit score. One late payment could potentially cost you 50 points or more off your credit score. The difference between a credit score of 660 and 610 is huge in the eyes of lenders. A credit score of 660 will qualify you for many loans. A score of 610 is going to get you rejected pretty easily.
Continue To Pay Down Your Debt Balances
Your debt settlement will only reduce the amount of money you owe to creditors. However, you still need to finish paying off whatever is left of the balance. Paying off the rest of your balance on time is a great way to increase your credit score.
Successfully paying down your credit card balance will increase your credit score in four different ways. First, your debt balance is becoming smaller over time. You are also establishing a timely payment history while you pay down that balance. Lastly, your credit utilization ratio is going down while your available credit balance is going up.
Overall, carrying less debt will make you more attractive to lenders regardless of the type of debt you have. This means it is always in your best interest to carry as little debt as possible.
Other Tips To Improve Credit After A Debt Settlement
Some creditors will report the debt as paid in full on your credit report. This will indicate that the creditors were satisfied with how you handled your debt situation. Getting a favorable account status can make it even easier to repair your credit moving forward.
It will take time to repair your credit. Expect the credit repair process to take as long as a year. Patience and sacrifice are the only ways to get your credit back to where you want it. Don’t let anyone convince you that your credit report can be erased somehow. This is not possible. Only time can repair the damage that has been done.
Make a savings plan. Saving more of your money will allow you to avoid falling into such a debt mess in the future. A few dollars a week is a good way to get into the habit of saving your money.
Your credit may take a serious hit after a debt settlement. However, you can still recover if you are serious about your financial situation. Apply for new credit cards, pay your bills on time and do not neglect to finish paying off the remainder of your debt. Doing so will allow you to restore your credit over time. Call us today to speak with a representative about how you can repair your own credit. Fill out the form to see what steps will help you get your credit back to where you want it.