Debt Settlement and Credit Repair

Debt settlement, either negotiated on your own or with a credit counselor's help, is a big step toward credit repair because it can get rid of delinquent bills or into a workable payment plan. Debt settlement, coupled with other actions like prompt bill paying and credit report clean up, may get you the best possible credit score.

Direct Settlement

Credit card issuers may make settlement offers for several months when your account is delinquent. Banks write off debts after about 180 days of delinquency, according to MSN Money writer Liz Pulliam Weston, but they will try collect before classifying it as a bad debt. Their agents may offer to accept less than what you owe as payment-in-full. Ask for a status of "paid as agreed" on your credit report if you wish to settle. This can repair the damage of past delinquent payments and a final status of "settled," however, is negative.

Credit Counseling

Credit counselors help you settle debt through structured plans negotiated with your creditors. A counselor first assesses your situation to see if other options, like helping you make a new budget and teaching you money management skills, would suffice, according to the Federal Trade Commission, FTC. If not, the counselor may recommend a debt management plan, DMP, and talk to your creditors about potential concessions, like lower interest or late payment-fee removal. Some lenders even "re-age" your account, repairing damage from delinquencies as long as you follow through with the plan. The counseling company administers the DMP; you send it a monthly lump sum and it divvies up the money to the creditors.

Repairing Credit

Past delinquent payments can give you lower credit scores; myFICO scoring company advises that 35 percent of your score comes from your payment performance. Catch up all bills that you did not settle and continue to pay them on time to bolster your credit rating. Lump-sum settlements help because they can reduce your debt, which makes up another 30 percent of your score. DMPs can help, as well although it can take up to five years to totally wipe out your debts.

Credit Report Corrections

Fast credit repair is possible through credit report disputes, according to Bob Sullivan of the MSNBC Red Tape Chronicles, as many as 25 percent of Experian, TransUnion and Equifax reports contain mistakes. Get copies from each bureau through AnnualCreditReport.com, which provides the report free once per year. Scour them for negative errors and send dispute letters to the bureaus or complete their online dispute forms. They must either verify or erase the data, according to the FTC.