Credit reports and credit scores have become increasingly important when applying and being approved for loan products. The higher the credit score and more clean and diverse the overall credit report you have, the better pricing (lower interest rates) and the more credit doors are opened to you. Many have become hyper vigilant and hyper concerned with their credit profile. Credit reports reflect your ability to repay debt. Credit scores are a number lenders use to assign risks associated with extending you credit. What happens when you have a blemished credit report containing late pays and charge offs? What happens when incorrect information shows up on your credit report? Your costs for borrowing increase and your ability to obtain new loan products are diminished greatly.
Whatever the reasons your credit is being impacted, there are measures to take to improve your credit. It is a process to restore credit, but is an obtainable goal when you take the appropriate and well planned steps. You can improve your credit report and score if you have never had credit; fell behind for several months and have caught up on bills; had accounts charged off; even if you have filed for bankruptcy. The tools and resources available to get started with repairing past credit mistakes are right here.
When you settle your debt, your credit score will decrease. That's because you may have a number of late payments recorded on your credit report. Not paying your creditors for several months damages your credit, but you can repair it once your settlement program is over.
How do I repair credit with debt settlement?
Just follow these 9 simple steps to improve your credit score after a settlement:
- Check the status of accounts on your credit report: Once you settle your debts, your credit report should say "Satisfied" or "Settled" instead of "Unpaid" or "Delinquent".
- Negotiate the account status with creditors: You can reduce the negative effects of settlement by negotiating a Pay for delete agreementwith your creditors. By doing so, the creditor will remove all information about the account from your report after you've paid it off. You can also ask your creditors to update your account status as "Paid in full" or "Paid as agreed".
- Apply for a gas/department store card: It's easy to qualify for a department store card even if you've gone through a settlement program. You can ask to have your credit limit raised once you're able to repair your credit.
- Keep some credit accounts open: It's better to not close more than 1 or 2 accounts every 6 months. Closing several accounts at one time will damage your credit score negatively. You need to choose the most recent cards or the ones you use the least, once you've paid off their balances.Keep at least 1 or 2 of your older accounts open because the length of your credit history is an important factor in getting a good credit score.
- Open a savings account: Try to put a certain amount of money into a savings account each month. This will minimize the chances of having to make late payments on your bills and keep your credit score from getting hit. You can also use the savings account as collateral for a loan or a secured credit card.
- Get a secured credit card: It's easy to get a secured card even if you lack a good credit history. When you use the card, try to make the minimum payment by the due date. There are even secured cards that will give you an all-in-one checking, savings, and a secured line of credit.
- Repay the debts you haven't settled: Pay off and avoid being delinquent on any debt you can't settle like rent or student loans.
- Avoid using payday loans: Payday loans may be great as an emergency source of money, but they carry high interest rates, APRs, and penalties if you miss a payment. Taking out a payday loan could get you deeper in debt than you already are.
- Join a credit union: If you're eligible to join a credit union, do so. Credit unions make it easier for their members to qualify for loans, and making your payments on time will help boost your credit score.
Although settlement hurts your credit score at first, it's an effective way to eliminating your debt problems. So, if you're experiencing financial hardship and you're unable to make monthly payments, settle your debts and then repair your credit.