When you attempt to settle your debt, you're likely to take a hit on your credit score. That's because, by the time you start settling your dues, you may have had a number of late payments recorded on your credit report. Moreover, if you're on a debt settlement program, you must have stopped payments to creditors for several months. Not paying your creditors for months tarnishes your credit and reduces it by several points. But you can repair credit after a settlement and make yourself eligible for further loans and credit.

How do I repair credit with debt settlement?

Just follow the 9 simple steps if you'd like to improve your credit score after a settlement.

1. Check the status of accounts on your credit report:
Once you settle the dues, your credit report should reflect the accounts as "Satisfied" or "Settled" instead of being reported as unpaid and delinquent. Otherwise, your credit won't be able to rebound.

2. Negotiate account status with creditors:
You can reduce the credit effects of settlement by negotiating a Pay for delete agreement with your creditors. On doing so, the creditor will remove all information about the account from your report, after you've settled and paid back the dues on that account. You can also request your creditors to update your account status as "Paid in full" or "Paid as agreed". This can be helpful in bringing your credit back in order.

3. Apply for a gas/department store card:
It's easy to qualify for a gas/department store card even though you may have settled your dues. You can request your credit lines to be raised once you're able to repair credit with settlement.

4. Keep some credit accounts open:
It's better to not close more than 1 or 2 accounts in every 6 months time. Closing several accounts all at a time will raise your credit utilization ratio (credit used/credit available) thereby affecting your credit score in a negative way. Therefore, you need to select the ones you'd like to close without affecting your score. While doing so, keep at least 1 or 2 oldest accounts open along with a few others. That's because length of credit history is an important factor responsible for a good credit score.

5. Open a savings account:
Try to put down a certain amount of cash every month into a savings account. Having done this, you'll minimize chances of late payments on your bills and save your credit from getting hit.

You can utilize the savings account by taking out a loan with the account deposit as your collateral. You can also use the account funds as a security for a secured credit card. The credit line of the secured card equals 50-100% of the funds deposited in your savings account.

6. Get a secured credit card:
It is easy to get a secured card even though you may lack a good credit history. While you may use the card to purchase items, try to make the minimum payment by the due date.

7. Repay dues you haven't settled:
To repair credit with debt settlement, start paying off those bills which you haven't settled till now. For instance, if you have dues on your rent or mortgage, student loans and auto loans, try making regular payments and avoid being delinquent on any of these accounts.

8. Avoid using payday loans:
It's better to not take out payday loans as because once you miss a payment, you're likely to face interest charges resulting in high APR. In case you can't pay the charges by the due date, the payday lender will again charge high interest, which could lead you into trouble with your payments. Thus, you may end up in debt again.

9. Join a credit union:
If possible, get membership of a credit union. On doing so, it'll be easier for you to qualify for loans and credit, and making on-time payments on such accounts will help boost your credit score.

Although settlement hurts your credit, yet it's an effective way of eliminating your debt problems. So, if you're in financial hardship and you're unable to make monthly payments, you may settle your dues and then go for a credit repair so as to raise your credit score and increase your creditworthiness.