Debt settlement is undeniably one of the most popular debt relief options. People opt for it because it reduces your debt but the only drawback here is that it can take a dig at your financial profile. Luckily, the dig is temporary and you can always recover and rebuild your credit with consistency. Rebuilding your financial profile is possible after a debt settlement but it takes time. There’s no magic trick that can help you recover the loss overnight. You’ll have to stay consistent with your efforts and use a strategic approach to make it possible.
Why Is Rebuilding Your Credit Important?
Rebuilding your credit doesn’t just play a crucial role in helping you get loans with better interest rates. In fact, there are a lot more reasons that explain why its crucial for your financial life. Starting with;
1-Your Credit Affects Your Access To Financial Products
One of the most important reasons why you need a good credit is that with a poor credit, lenders can deny you loans and you won’t even have access to credit cards. Even if you do manage to get a loan, it’ll be quite costly as it’ll come with high interest rates. Moreover, a good credit report can help you secure better auto loans, better mortgages and low interest credit cards.
2-It’ll Impact Where You Live
Landlords often check your credit score before approving any of your rental applications. If you want to rent an apartment in a well-known place, chances are that with a poor credit score, your landlord will reject your applications. Even if your application is approved, you’ll have to pay a huge security deposit or have a cosigner to reduce your landlord’s risk.
3-It Can Limit Your Job Opportunities
Employers mostly check the credit scores of applicants to ensure that they are hiring a financially responsible employee. Especially if you are trying to secure a position in the finance department of a company or some trustworthy position, you’d need a fair credit score for it. A poor or below average credit history can raise red flags regarding you in front of the employer.
4-It’ll Affect Your Everyday Life
In order to set premiums, insurance companies use your credit history information. Moreover, phone or utility companies might require a deposit if you have a poor credit history. In a nutshell, your credit will affect almost all the financial aspects of your everyday life which is why it’s crucial to rebuild and maintain one.
Effective Strategies To Rebuild Your Financial Profile
If you’ve recently settled your debt and your credit report is in a poor state then here are some effective and useful steps that you can take to rebuild your credit;
1-Ensure Accuracy In Your Settlement Details
The first and foremost thing you need to do is to review your credit report and ensure that the settlement has been marked accurately. Any misinformation, errors or discrepancies can further bring down your credit score. You need to ensure that your balance has been listed as “zero”. Moreover, it’s recommended that you keep a copy of your report in case you want to dispute any errors in the future.
2-Creating A New Budget For A Fresh Start
Rebuilding credit means taking a whole fresh start without looking back. You can make a spreadsheet to identify where your money goes. One of the best things you can do for yourself is to create an emergency fund and keep depositing at least $500 to $1000 monthly to ensure that you don’t ever fall back into debt especially during an emergency or a financial crisis.
3-Start Working On Rebuilding Credit
In order to rebuild your credit, you first should get a secured credit card. It’s easy to get a secured card especially because it requires a security deposit. Once you get it, you should then pay your monthly bill on time as it’ll reflect on your credit score. Another tip is to request any one of your family members or friends with a good credit history to add you to their credit card. The more they use their card responsibly, the more it’ll help in rebuilding your credit history. To build a solid payment history, you can apply for a credit builder loan too. These loans are held in savings accounts and paid off monthly which is another great tactic to improve and rebuild your credit.
4-Building A Credit Mix
You should focus on building a credit mix because the revolving loans and installments can really reflect positively on your credit. It’s a great strategy but again, you need to make your monthly payments before the due date for your credit mix to work.
5-Use Your Card Responsibly
The more responsibly you use your credit cards, the more helpful it’ll be in rebuilding a solid credit history. For example, make sure that you are spending less than 30% of your credit limit and that you are paying your bills on time. Your payment history makes 35% of your credit score which is why the more you emphasize on it, the better it is. To ensure that you never miss a payment, you should try automating your bills.
6-Be Patient And Consistent
Although a debt settlement will stay on your report for 7 years, its impact will start carrying less weight with the passage of time. Especially if you show a positive credit behavior, you’ll see how your settled debt won’t even matter after a certain time. Moreover, you should track your progress and keep monitoring your report to ensure that you are meeting your goals.
How Long Would It Take You To See The Results?
We understand the fact that showing patience when your credit report isn’t in a good standing is hard but that’s where you need to stay consistent. It’s important to understand that rebuilding your financial profile after a settlement is a time taking process and you won’t see any results overnight.
As far as the timeline is concerned, you’ll start seeing the improvements in your report within 6 to 12 months after you make your efforts. In the long run, after 2 to 3 years, a significant difference will be visible in your credit report and by that time, if your score is good enough, no lender or landlord will bother your settled debt. In a nutshell, give the process some time as time is the best healer!
What Credit Score Is Considered “Fair”?
After a debt settlement, if your credit score lies between 580 to 669, it’s considered “fair” and it won’t limit your financial benefits. However, anything below 580 means that your score needs improvement and the settlement has caused more damage to your report than what you were thinking. A below than average score indicates that you need to start working on your financial profile immediately.
Final Word
If you are planning to leave your credit score to deteriorate, it can severely limit your financial options and it can have a serious impact on your everyday life as well. In simpler words, neglecting your poor credit history shouldn’t ever be an option if you want to be in control of your financial life. Even though rebuilding your report will take time, it’s still worth the effort because in the long run, you’d need a good credit history to seamlessly manage all aspects of your financial life.
FAQs
Q1. Can You Survive With A Bad Credit?
Yes, you can survive with a bad credit but only if you want to use cash or debit cards for the rest of your life. You’d need to work on rebuilding your credit after debt settlement if you want to use credit cards and avail all the financial benefits they come with. Neglecting your bad credit can seriously impact your life on a whole other level. From renting to mortgages and even insurances, you can face issues with all such aspects.
Q2. Can I Erase My Credit History?
No, you cannot erase your credit history and no one else can do that for you too. It’s only possible that if you find any errors in your report or any discrepancies then you can dispute them with your credit bureau and the bureau can then make the required changes to your report.
Q3.Can I Fix My Credit Score On My Own?
Yes, improving your credit score is entirely dependent on you. By showcasing responsible financial behavior, paying your bills on time, keeping your credit utilization ratio low and avoiding any further loans, you can start rebuilding your credit score.
If you are seeking professional help to rebuild your financial profile after debt settlement then try Mountains Debt Relief. To reach your goals, you need our expertise and experience and with us, it’ll be worth it!