You can rebound faster from debt settlement if you get right into rebuilding your credit. The good thing about debt settlement over bankruptcy is that you can typically get new credit sooner after you’ve settled your debts. If you’ve kept a credit card out of your settlement – something you usually can’t do with bankruptcy – then you’re likely a step ahead in terms of improving your credit score.
Check your credit report
Review your credit report to make sure debt settlement looks right. Your settled accounts should report a $0 balance and should have a status of “Paid,” “Settled,” or “Closed.” Dispute inaccuracies with the credit bureau or with the creditor who reported the account. Use your debt settlement offer letter and proof of payment to support your dispute if necessary.
Get new credit.
You probably want to add new positive entries to your credit report to overshadow the negative items added by debt settlement. So, new credit would be necessary. If you don’t have a credit card already and can’t get approved for a regular credit card, save up a deposit for a secured credit card. Prepaid debit cards are a good option for spending money, but they don’t help you rebuild your credit. Opening a few credit cards will likely let you add more payment history than if you just had one card only.
Use your credit cards.
Just getting credit isn’t enough. You have to likely keep your accounts active so they’ll continue to reflect in your credit score. Make small charges on your accounts each month and pay the balance in full. Or, rotate using one card each month. Just make sure to use all your cards at least once a quarter. If you keep your purchases to a minimum, e.g. less than $100, you can probably easily pay off the balance and avoid creating new debt.
Make your payments on time.
To rebuild your credit, you must make your payments on time every month without fail. One late payment wouldn’t hurt your credit score as much if you had a spotless credit history. However, when you already have damaging information on your credit report, a late payment looks worse. Set up automatic payments from your checking account if you can’t remember to make your payments on time.
Let your accounts age.
Once you have two or three new accounts open, stop applying for new credit. Your credit score usually benefits from having an “aged” credit history, meaning your oldest account is old and the average of all your accounts is high. Adding new accounts to your credit report lowers your average credit age, so avoid opening any additional accounts once you have enough to start rebuilding your credit.
Keep good accounts open.
If you have accounts in good standing, keep them open if possible. Closing accounts can have a negative impact on your credit score, especially if an account has a balance. Your credit score also likely benefits from the available credit on your credit cards, more so probably if that card doesn’t have a credit card balance. Of course, there are some situations that closing a credit card is probably inevitable, e.g. the credit card issuer starts charging an annual fee that you’re not prepared to pay.