If I settle debt how long will it take for my credit report to be good again?

I am now behind in paying 3 credit cards with 3 different banks.

I have 2 options - Bankruptcy and debt settlement. I qualify for chapter 7 bankruptcy but do not want to do that if I can avoid it. I estimate I can come up with about half of the balances I have now in about 12 months - some is a loan I have already confirmed I can get from family when the time comes to settle my credit card debts.

Your article on your blog about the effects to my credit report with bankruptcy or debt settlement was very informative. With the detail I am giving you, what do you think will happen to my credit if I settle my debt in a year or less?

If I settle debt how long will it take for my credit report to be good again?


Thanks for reading the blog. I am glad you found some of the posts informative. I have questions about your credit history before I can weigh in with how long it could take for your credit score and credit report to recover from settling debt.


What is showing in your credit report right now can make a difference in what happens to your credit score and future access to credit.

Do you have a mortgage you are current on? If not, have you had one in the past?


Do you have a car you are paying on? If not, have you had one in the past?


What other revolving credit accounts such as branded store cards, personal loans, other credit cards have you had in the past? These could be accounts that were closed, but that show a positive history, or ones you have open now, but with low to no balances.


I am asking these questions to get a sense of your credit depth.


If you have a deep and diverse credit report history with several accounts other than the three you are behind with, that fact will generally help your credit score bounce back quicker once the other 3 debts are settled and updated as resolved and showing zero balance due on your credit report.


I have seen credit bounce back from the affects of debt settlement in a matter of months given the right circumstances.

If your credit file is skinny and contained only the three credit card accounts that are going to go bad as part of the debt settlement process, then it will likely take a couple years for your credit to recover (starting from when you get the last settlement out of the way).


The best thing for your credit report would be to settle all 3 credit card accounts before charge off.  This would mean negotiating with the banks collection departments, getting the settlement letters, and funding the offers within 6 months (180 days) of delinquency. Your comment about being able to do this in 12 months reflects calculating 50% of the current balances. What if you did not need 50%? Depending on the banks your 3 credit cards are with, you may actually be able to get this done quicker. What if some of your credit card balances could be settled for 40%? What if you settled in month 5 of your late payments and got 3 months to pay the settlement off?


If you have not read the post: Debt Settlement in Michigan I recommend you check it out. The CRN member who was the focus of the Detroit Free Press article I blogged about would be a good example of how credit report depth and quick debt settlements combine to provide the rapid credit score bounce back that I referred to above.


Credit card debt settlement takes longer than 6 months for most people.

The majority of people who choose to settle debts as an alternative to chapter 7 bankruptcy are not able to accumulate the money they need in order to settle all of their credit cards before the accounts charge off. Most often people target one of the credit cards for settlement in the first 180 days and negotiate settlements with their remaining accounts one by one after that.


Settling one credit card at a time is an effective way to avoid bankruptcy. Someone who is trying to limit the impact of settling debts on their credit report, but who must negotiate and fund offers one at a time, will often be looking at an estimated 12 to 24 month credit report recovery time frame. That one to two years starts after the last credit card is settled.


Here is a short video about what happens to credit when you settle debt:



Credit scores are factored using more than payment history. Credit utilization, what you owe as a percentage of credit available, is a factor too.

With the current risk adverse lending environment, creditors are less likely to underwrite new loan products to someone who has a debt to income ratio out of line with their set parameters. This fact is affecting the ability of many people who want to get new credit – even those with a good credit score.

Your projected need for credit in the next 2 years is also important.

Are you anticipating purchasing a home, vehicle, or applying for a student loan? If so, what is your timeframe for doing so?

Your best bet to address your credit recovery concern is to settle your accounts within 6 months if you can. If that is not going to happen, you next look to settle 2 out of 3 debts before 180 days. Even knocking down 1 of the 3 credit cards prior to charge off would help. If you want to find out how possible it will be to reach these early credit cards debt settlement targets, what amount to target, how to prepare for and negotiate settlements, combined how to best manage credit report impacts, and prepare for access to future credit products, get started with reviewing the debt settlement sections of our free online debt relief program. 


Anyone with questions about your debts and how your credit reports and credit scoring are being impacted now, and how to recover your credit now or in the future, post in the comments below.

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About Michael Bovee

Michael started CRN in 2004 with a mission to provide detailed debt and credit help and advice that encourages and allows people struggling with debt to solve their debt problems just like a pro - but without the high fees.

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  1. Michael Bovee says:

    This comment post was originally submitted as reader question about settling a debt and getting it to show up as “paid in full” on the credit report. I am posting it and my reply to this page in an effort to better consolidate site content.

    “I live in the state of Maryland. I just recently applied for a job in the government and must clean up my credit before I am officially hired.

    I have a Citibank credit card that went into collections. I was also sued by the credit card company. I have written two letters to the collection agency offering to settle for 45% but they won’t settle beyond 50%. Because time is of the essence for the job, I am willing to pay the 50% balance however with the condition that it is reported on my credit report as PAID IN FULL – not Settled or Balance Settled – nothing with Settling in it.

    The CA has advised that “that this law firm does not report to credit bureaus; we cannot make any representations related to credit reporting. Their client will report as appropriate when they are advised that the account has been settled as agreed. When the account is settled we will file a line of satifaction with the court.”

    My questions are: Is this true? Can the CA not report the standing of the account? How do I get a guarantee that the original creditor will report “PAID IN FULL” as I’ve requested? Should I draft another letter? If so, what should it state?

    Is this true? Can the CA not report the standing of the account with the Credit Bureaus? How do I get a guarantee that the original creditor will report

    • Michael Bovee says:

      The original charge off on your credit report from Citibank cannot be changed by the attorney collection agency. You also will not be able to barter with Citibank to get the charge off they originally reported removed or updated to show it as paid in full.

      The only thing the attorney collection agency can do to help you with your credit report is to file a satisfaction of the judgment with the court once you settle with them.
      The court does not report direct to Equifax, Experian, or TransUnion. Data miners take the court record information and send that to the credit reporting agencies. If you need to get this judgment cleared up and showing as resolved for employment (or future credit purposes), you will want to be proactive and send a letter to the credit rating agencies along with a certified copy of judgment satisfaction from the court.

      I wish I had something better to share with you, but sending in another letter with any other expectations that it will fix your credit report is not going to be productive given the details you provided.

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