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Repairing Your Credit after Debt Settlement

Satisfying your outstanding debts one by one is the best place to start.  Paying off those accounts in full, without making any payments late, or skipping some completely, is the best way to maintain a good credit score.  If you stop paying some, or all, of your debts the extra interest and fees created cost you in terms of both extra cash and a negative impact on your credit score.  If you find yourself in a situation where you need to use a debt settlement company to negotiate with creditors, it may reduce your monthly obligations but also may cost you more in the long run, especially if you are paying large fees to the debt settlement company for their services.  If you have gone that route, your credit score has probably been shredded and your financial outlook may appear bleak, so what’s next?

  1. Get a new credit.

Although it sounds a bit counterproductive since it was debt that got you in this pickle to begin with, the very first step to bringing your credit score back up is to acquire new credit.  You’ll probably face problems getting a credit card with the larger financial institutions offering MasterCard or Visa, but you can still find it elsewhere.  You can try getting a department store card or even a gas credit card.  Both are somewhat easier to acquire and usually come with low credit limits.  If you can’t get those either, you can always turn to a ‘secured’ credit card.  This means deposit a set amount, commonly $500 or $1000, and that is your credit limit.  You still must make payments to start improving your credit outlook, that deposit is simply collateral.  Your account will be periodically reviewed and after a few months of successful payments you may get some, or all, of your deposit back and be rewarded with a standard credit card.  The goal is to demonstrate that you have started handling debt obligations responsibly, thus reducing the potential risk a creditor may feel about issuing you new credit in the future.

  1. Turn to credit cards issuers that specialize in elevated risk credit.

These are the cards that have been specifically designed for people who have poor credit to begin with.  Since the creditor must take an increased risk in these cases, these cards usually come with higher than average interest rates.  Make sure you find out and evaluate the pros and cons of these cards before you jump at the opportunity to get one.  Although it can be a good option for people whose financial situation has yet to completely turn around, you need to make sure you use these cards responsibly and pay off balances monthly to avoid excessive costs.

  1. Make a lifestyle change by building new habits.

If you’re serious about turning your credit score around, then you’ll need to make some changes to your spending habits.  If you keep doing what you were doing with your past credit cards, there’s no point in expecting a different outcome with your new one.  If you don’t make a change, you’ll wind up back where you began – with a debt looming ominously over your shoulder.  Start by only buying products you know you can afford.  If you charge something to your credit card that you are unable to comfortably pay off, it could easily start another downward spiral into another mountain of debt.


You should also pay more than just the bare minimum on your monthly credit card bill payments.  In fact, try and pay the balance in full every month.  Paying just the bare minimum means that over time, you’ll end up paying extra in interest.  You will need to be more disciplined with your spending.  Make sure that you’re making payments on time for all your accounts, small and large.    Instead of ordering in or eating out, cook your own meals or pack your own lunches.  Changing those simple eating habits can save a lot of money, even though you might not realize it at the time. Start making budgets and sticking to them.

  1. Create some ‘good’ credit.

Now that you’ve made some changes, you’ll need to start practicing some decent credit habits. Your credit situation won’t improve until your lenders see that you’re managing your money more responsibly.  Once you do have access to another traditional credit card, spend wisely and pay promptly.  Refrain from charging expensive items to your credit card unless absolutely necessary, for instance a medical emergency.  Only use your credit card to buy items you know you can pay for. Never spend more than your monthly income.

During your time rebuilding a good credit score, don’t apply for more credit cards just because you can.  The temptation is strong but stop and think about how easy it is to make a credit card purchase and how many small purchases can add up to a huge expense that you have no plan for.  Managing multiple payments for and balances from different credit card companies at the same time can also become difficult.  Forgetting just one payment and your efforts towards building good credit may have been substantially damaged.

How long till you get a good credit score?

The implications of poor credit management can be felt for an extended period. Things like delinquent payments or defaulted accounts can stay on your credit report for up to seven years.  However, after doing all you can to bring your credit back up by following the steps above, you can start to see improvement in your credit score in a relatively brief time frame.  It may take a while to break into the 700’s but no matter what level your credit score is now, any improvement in the score will help you to acquire credit when you need at and at a lower interest rate.