There are specific ways that debt settlement affects your loan in the short and long term. While this ensures that collection agencies no longer contact you, debt settlement affects your creditworthiness. This includes late payments and payment defaults. Most negative items should automatically fall off your credit reports seven years after the date of your first missed payment. From this point on, your credit rating may rise.
How long does it take to improve credit scores after debt settlement
There is no guarantee that once the damage has occurred, the lender will agree to a settlement or that it will agree to pay the debt for as little as hoped. While you may be enjoying the benefits of a good credit score, you ultimately need to decide whether a temporary drop in your credit score or complete freedom from your unsecured debt is more valuable. It sounds great and it certainly can be, but consumers should be informed that their credit is going to take a hit.
How can I increase my credit score after debt settlement?
From the lender’s point of view, it may be better to arrange payment of part, but not all, outstanding debts than not to receive debt. The best thing you can do to get your credit back on track is to pay your bills on time and in full, which makes 35% of your score. First, your bills are likely to be paid late or they may not be paid at all, so those late or missing payments will be reported to credit agencies, affecting your score.
References:
- https://borrowell.com/blog/how-long-to-rebuild-credit-after-debt-settlement
- https://consumerrecoverynetwork.com/question/if-i-settle-debt-how-long-will-it-take-for-my-credit-report-to-be-good-again-vega/
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Barry Ritholtz is a renowned finance expert, author and blogger. With over 30 years of experience in the financial industry he has gained a reputation as a thought leader and influencer in the investment community.