Ways to Repair Credit After a Settlement

Settling that old debt may have cost you up to 125 points on your FICO score and possibly a little more, but you can recoup those losses in months. Repairing your credit after a debt settlement is much the same as recovering from any other seriously negative item. Also, you are in a much better position than if you declared bankruptcy.

Considerations

Debt settlement may not have ruined your credit score as much as missed payments that led to the creditor agreeing to take a portion of the balance rather than risk receiving nothing in a bankruptcy case. If you headed into the debt settlement with a score of less than 680, the settled account probably took off fewer than 45 points. Also, removing the debt from your profile may offset some of the points you lost.

Prevent Future Delinquencies

Review the other accounts on your profile. Try to pay off any other debts or at least meet the minimum payment and become current so you do not have to settle another account or force the creditor to write it down or send it to a collections agency. Lenders usually offer some help, such as deferred payments, if it helps you get back on track, but you must ask for this as soon as you see signs of trouble.

Start a New Account

Paying existing accounts probably won't be enough to repair your credit, so Credit Karma suggests opening a new account -- if you feel you can handle it -- to have a line of credit with no blemishes in its history. A credit report with a debt settlement as its only negative item may mean you still qualify for a regular, unsecured credit card. At the very least, you can go for a secured credit card, which requires a deposit that might be as low as $200.

Tip

Unless you settled the debt on your own, your attorney or representative may have made an agreement with the creditor on how to report the account. The representative could have included a stipulation, for instance, that you would only pay if the creditor wiped the account from the credit bureau records. In this case, the settlement did not harm your credit score and you may see a boost to it. Credit counseling is another option when you have a debt settlement agreement pending. The counselor might talk the creditors into a smaller payment or some other method that avoids a settlement.