Does Credit Repair Work on Accounts That Have Been Settled?

Consumers who have settled some or all of their debts with creditors often want to begin rebuilding their credit scores so they can once again get loans and competitive rates. While there is no trick to building your credit rating, your score will definitely be negatively affected by a settlement. However, a settlement will not preclude you from building a good credit score.

Debt Settlement

Debt settlement is when a debtor negotiates new terms with a creditor, typically by paying the creditor a lump sum payment smaller than the amount owed. The creditor then forgives the remainder of the debt in return for the large payment. Debt settlement is a viable option for debtors who wish to reduce the amount of debt they owe but also have few other credit accounts that will be affected and do not plan on getting new accounts soon.

Settlement Impact on Credit

When you settle, for example, a credit card account, a record of that settlement appears on your credit report. According to Yahoo Finance, a debt settlement on your credit report can lower your credit score from 45 to 125 points. This can effectively make you ineligible for receiving a new line of credit after the settlement appears on your report.

Credit Repair

If you've already gone through a debt settlement, all is not lost. Though your credit score will likely be lowered for the immediate future, you can begin the rebuilding process immediately. Your credit rating is based on your behavior as a borrower. As long as you keep making all your bill payments on time, do not charge too much on your credit cards and do not open new lines of credit, you can start raising your score almost immediately.

Scams

Credit repair and credit settlement are two areas particularly prone to scams and companies that make illegitimate claims about being able to help you out. The Federal Trade Commission reports that some debt settlement companies claim their efforts won't have any negative effects on your credit, though there is no guarantee this is true. Further, there's no reason you can't settle your own debts and create your own credit repair plan.