Debt settlement can hurt your credit score, but thankfully, you don’t have to live with damaged credit forever. Debt settlement will only stay on your credit report for seven years, which is much better than the ten years that bankruptcy typically remains on your credit report. The other usual upside to debt settlement is that it’s a remark in the payment history section of your credit report, not the public records section where bankruptcy is listed. Any public record likely severely hurts your credit score and looks bad to future lenders. You don’t experience this with debt settlement.
Plan for the future
You can count on having a fairly hard time getting new credit after debt settlement is finished. But, you’ll typically need new credit if you want to rebuild your credit score. If you haven’t started the debt settlement process yet, you may decide to keep one credit card out of the settlements. That’s only if you can afford to pay off the balance without settling the account. Keep making timely payments on this account and it could give you something to benefit from once your settlement is over.
If you elect to do the foregoing, then make sure you let your settlement firm know you’re keeping an account out of the settlement. Creditors and debt collectors that you are settling with can access your credit report and could see that you have a credit card with a positive payment history. They could use this fact as an argument against settling your accounts. As long as the settlement firm knows about the account you’re keeping out of the process, they should be able to explain to your creditors why you’ve kept this one account.
Negotiate items off your credit report
It’s rare for this to happen, but it’s a possibility. Some creditors are willing to remove an account from your credit report as part of the settlement. The more negative information you can remove from your credit report, the easier it will be to recover from the negative consequences that settlement does to your credit report. Also, you may be able to negotiate removal of old accounts that are about to fall off your credit report anyway.
Apply for the right credit cards
After you’re done with debt settlement, you probably won’t get approved for an American Express or any other premium credit card. It’s probably not even worth it to try. Instead, you should stick with credit cards that are known to approve applicants that have a bad credit history, like those issued by Orchard Bank.
Several credit card issuers have a pre-qualification application on their websites that only do a soft pull of your credit (the one that doesn’t hurt your credit history). You can use the pre-qualification application to see if the credit card issuer has any credit cards that fit your credit profile.
As a last resort, you can apply for a secured credit card. As soon as you make your last settlement, you could start putting the money you used to send the settlement agency into a savings account. Then, after a few months, you could use that money as a deposit on a secured credit card. With this method you may be able to get a very good credit limit. With a new credit card, you could start taking the steps to get your credit back where it was before your debt trouble.