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 with 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?
—Vega
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 on 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.
Your Credit Report can Bounce Back from the Impact of Settlement in Mere Months
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 Settlement Takes Longer than 6 Months for Many
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 Credit Utilization
What you owe as a percentage of credit available is a factored into your credit scores. 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 scores are being impacted, and how to recover your credit now or in the future, is welcome to post in the comments below for feedback.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
I currently have a credit score of in the mid 600’s. My debt to income ratio is high and my credit usage percentage is hovering around 63% to 71%. I have a perfect payment history 100% on time and/current. Nothing in collections. I have major trade lines AMEX, Citibank, Discover, ect. some as old as 20 years others as new as 2-3 years.
I have 3 personal loans with high repayment terms but I am paying them on time but of course it’s all going to interest, and of course even though I make my minimum payments on time they don’t even touch my credit card balances. I was approached by a law firm that is saying they can do a debt resolution on ONLY accounts like the unsecured personal loans and certain credit cards I don’t want (ones that have lowered my credit limits due to high usage and closed and/or I can’t use but are reporting as current because I still make the minimum payments) leaving me with credit cards with long history to use and pay down without the burden of keeping up with the high payments on the personal loans.
They are saying they can use the debt collecting laws, not sure, zero “0” out all the unsecured debt I include in the debt resolution. I am asking about the effects on my credit because I have just ventured out on several business ventures which I need to able to reduce my debt to income ratio and my high credit usage to qualify for better rates on SBA loans and business credit etc. What would be the lasting effects on my credit score and how long? They continue to say they can’t say and every situation is different and that it takes 6-24 months to resolve. My score will fluctuate. I don’t want 7 years of charge offs on my credit? Not really sure if this the best move when I have moved into entrepreneurship and will need good credit to move successfully and secure loans.
The damage to your credit scores and reports from stopping payment in order to later settle is severe and quick. It bounces back when you complete the settlements, and rapidly, but not nearly as fast as it drops!
Based on what you shared it sounds like the company you are talking to may not even be offering to help you settle for less. It sounds like a company offering to “invalidate” your debt. That can lead to longer credit damage.
You can settle some accounts and not others. There are some side effects to that. Credit cards you want to keep open may close you anyway, once they see the late payments to other accounts. Not all do that, but it is something to anticipate.
Given the goals you shared, and the timeline, I would stay away from settling or missing payments if you can avoid it. Focus on an aggressive debt snowball strategy.
You can schedule a call with me to talk through how selectively settling the worst accounts may still help you reach your goals: https://calendly.com/debtbytes/15min
Just know that there is no way to do that without your credit taking a hit that will further delay your ability to get an SBA loan.
My sister had a car accident & her car was totaled back in August. After payout from insurance company & from her GAP insurance she was still left with a balance of $3150. However, she wasn’t notified by capital one auto finance until a few days ago of that remaining balance (she thought GAP had covered all remaining balance). Now, they’ve told her she had to pay it off before the end of the month since that’s when the account will reach 120 days, otherwise it will be reported as a charge off. Since she never received previous notice, Capital One worked a settlement agreement of $1100. If she decides to accept and pay the settlement agreement, will her credit score still take a hit it?
If it is on her credit now as being late 90 days, her credit is already hit. Resolving it to show a zero balance will allow it to start to heal.
Hello,
My husband and I have been trying to research how we can get rid of our debt 34,900 between 2 cards (one card total is 13,000–s at 0% until feb 2020 the other almost 22,000 11% interest). a debt resolution specialist claims he can possibly cut our payment to 540 totaling debt 17,000 after the settlement and that 17,000 paid off in 2 years. We are worried about how long this would hurt our credit and ability to ever get a loan for a home. We both have good credit, he’s 740 and I’m somewhere in the 700. We need any help or ideas that will help our situation. We do have 2 other credit loans through furniture companies, a cell bill, one leased car and 1 financed car. We are extremely nervous and stressed and need help and don’t want to make a desperate decision but need answers as soon as possible. We are willing to speak over the phone if you have the time.
Is there any advice you can give us?
Is the debt resolution specialist hiding anything?
Is debt resolution our best option?
Thank you so much. Your help is greatly appreciated.
Any debt resolution option that will not pay 100% of what you owe is going to clobber your credit. And you will not be able to get a home loan until some time after you resolve the debts.
For some of us, the credit hit is okay, as we have an unaffordable debt problem, so we take the measures needed to get out of debt first, and rebuild credit afterward.
If it took 2 years to settle the debts, and a year or 2 to rebuild the credit after that, and that 3 to 4 year timeline to buy a home is inline with my goals, I would consider debt resolution (which is just debt settlement by another name).
You can click the get debt help tab at the top of this page and fill out your profile and talk with me about your situation, goals, and how to accomplish them.
You are awesome. That is all.
Great Post Michael!
I am considering debt relief now. I have $18,00o of student loan debt, an $8,000 unsecured loan and $12,000 of credit card debt ($38,000 total). With my current income, I am basically struggling to make payments on this debt and still have enough for living expenses, so I am adding slightly to the debt every month. However, all my accounts are current and my credit score is currently 720.
My question is, how much do you think my credit score will go down, and how long until it might bounce back to ~700? I read that late payments stay on your account for 7 years, so will my credit take that long to get back to 700-720? I have several credit card accounts with 0 balance as well (about 40k of unused credit as a buffer).
It was good to speak with you on the phone yesterday Ian. I did not think settlement a great idea for you. Please post updates with what you ultimately decide to do, and the success you have.
Hi Michael,
I currently have $33k in credit card debt and $7k loan with Lending Club. I currently pay just over $1k a month for the debts, and I pay the minimum. My credit score is almost 700 and I have a mortgage, no car payment. I am trying to reduce my monthly payment and received an offer to pay about $600 a month for 48 months with a debt settlement company. Do you recommend this option?
I never encourage 4 year settlement plans.
List your credit cards and balances as of today. I will look to help you cut that time in half.
Hi Michael,
I have been reading your responses and want to say thank you for taking the time to help everyone. My husband and I fell on some hardship (raise freezes for seven years, illnesses and etc) and though I am not currently late on ANY of my credit card payments… I have 35k of them. I want to get a home equity loan if the house has enough equity but because of the debt my dti is WAY ABOVE what it should be. I want to continue to pay the debt but with two kids in college, I would like some breathing room instead of finding myself having to use my cards even more. It sounds like, just through the preliminary scans, that I will not get approved for the equity loan due to my dti. I am not sure if they would use my current dti or the dti it would be once I got the loan? Also, what other options do I have? If I can’t get approved, ultimately that means I have to get debt counseling? If you do debt counseling or debt settlement, then ultimately my credit will be wrecked for 7 to 10 years? Right now, I have a 641 score with the dti really killing it. Any information would be very helpful! Thank you so much for any help you can offer. I really want to do the right thing and pay off the debt but fear no one will give me that option… and so I need to know my next steps! Thank you so much!
Also, sorry I wanted to add another question… with debt counseling or settlement, do you have to claim ALL your credir card debts, or just certain ones. I saw that you said if you have “other debts” that have good standing instead of just the three that person had, then that would help the credit bounce back quicker. So does that mean that you can just debt counsel/settle on some of the larger amount ones, and keep paying regularly on some of the smaller ones to help bounce back quicker?
Yes, but doing this is situational. Read this article about evaluating which accounts to keep out of debt settlement.
In a debt management plan with a credit counselor you would typically only keep one credit card out (with some exceptions).
Lenders typically use your debt to income ratio at the time you apply for a loan.
Your credit is not ruined from credit counseling or debt settlement. Read through this article about the impacts to your credit from debt relief. Read this and you will understand how debt relief will impact your ability to get financing in the next 2 to 3 years. If you want to talk strategy from there, post more questions here, or call in for a free consult with me at 800-939-8357 ext 2.
Hi Michael,
I have 4 credit cards with a total of $17,000 debt (about 75% of my credit allowance). Two cards with BoA, one with Chase and one with Barclays. I am able to make minimum payments (about $420/month combined) but the interest rate is so high that I’m not able to pay off these cards fast enough, and I don’t want to keep paying them for 20 years ending up paying up to $40k. ‘m also leasing a car and have been making timely payments on that (about $280/month).
I’ve talked to debt settlement company (NDR) and they said they can settle all accounts for $13,000 split in 36 payments of $350. Now, I think I could be able to pay more than the $360/month, so I believe I could settle the $13k in a little over a year.
I’m still worried that if I do this I might not be able to get a mortgage in the next 3 years or to lease a new car once my lease is up in 12 months. Other concerns are how settling all my cards could affect my credit long term.
Would it be better to keep at least one of the cards open and just pay the entire amount off so, and settle the other 3? Would that together with my car lease help me maintain a better credit score and credit history? What else could you recommend?
Thank you!
Alex
It sounds like you could do an aggressive debt roll up and keep your credit intact. Read through that link. If you like, I can send you the excel work sheet from that page so that you can plug in your debts and get a look at how quickly you can be through this.
If you must go the settlement route, fill in the talk to Michael form in the right column. I will email you to set up a phone call when I see that.
I currently have 2 cards that add up right under $30k combined. Because of these two cards, my debt to income ratio is extremely high and is hurting my credit score. I have had two open autos,one which is currently still open and another that has been paid off and closed. I was never late on any payments on either my autos or the credit cards I currently have open.
If I charge off these two cards, I am confident I can settle the balance within 180 days.
My plan is to buy a home within the next year. My question is, if I charge off the accounts now and settle it within 180 days, would my credit score rebound quickly enough to apply for a home loan by next December?
Thank you,
Danny
What would you estimate the loan amount you will apply for later to be?
Will you be able to save up to settle and then quickly save up for a down payment on the home?
Is there anything other than the cars and cards on your credit?
Do you know you credit scores as of now?
Hi Michael,
I had an 18K balance on a Chase card for 6 years, 25% APR, never had a late payment and almost never used the card, paid them well over the balance obviously in interest alone over those 6 years. Recently came upon some money and asked them about a settlement. They offered 80% of the balance and I took it. They even said “congratulations” to me.
I got my updated Experian credit report this week and it was reported as “Legally paid in full for less than the full balance” with an “N” for October, and my credit score dropped 75 points. I now have a Serious Delinquency and a Recent Missed Payment in the What’s hurting your score? column. There were no late payments. I filed a dispute with Experian.
Equifax score dropped about 50 points.. It was reported as “Paid as Agreed”, and then Comments below say “Settlement accepted on this account”. I’m noted for a Serious Delinquency, but no Recent Missed Payment.
Transunion doesn’t show a drop in my score and no Serious Delinquency. The Chase card however, still shows a remaining balance (the 20% of the balance not paid) even though the card is closed. Guessing the update hasn’t gone through here yet, and I will get hit.
I called Lexington Law (link was in Experian) and they seemed to say that they can help.
Is there anything I can do about this?
Thanks for any feedback.
Paying for credit repair in this situation will be a waste. Chase is unlikely to remove or change anything if they see they are reporting accurate and current information.
You cannot settle for less than what you owe, even without missing a payment, and not have that impair your credit score.
The credit damage will be short lived if this is the only blemish on your credit reports.
Do you have any major financing goals in the next 12 months? If so, what are they?
So my credit report is going to say “Serious Delinquency” for 7 years because they offered me an 80% settlement, and I took it – with no late or delinquent payments ever. How is that possibly fair? There’s nothing in the Fair Credit Reporting Act that can get that taken off?
I have no financing goals over the next 12 months. Ironically I”m in the midst of refinancing my home. It was supposed to close a few weeks ago but a hurricane came through and it’s been postponed. Hoping they don’t pull my credit again, it would be a mess.
It very well could turn into a mess.
The FCRA requires furnishers report accurate and up to date information. The settlement you made with Chase, and the way you describe their reporting, meets that.
Hi,do you think it would be ok if I talk to the bank collection office directly to see if they can help me to settle my depth. My depth is $ 32000 in three different companies. The other way is credit repair companies. Do think they can help me? Thanks
Who are your debts owed to? How long has it been since you paid them? Are you prepared to pay settlements now? If not, how long until you have the money to pay any deals you negotiate?
How long would it take for me to rebound my credit? Since I have good history with my creditors prior to this hardship would they be more willing to settle rather then not?
I see peoples credit scores bounce back after settling debts in a matter of months. I see other scenarios where it can take a year or two after all your settlements are completed.
Does having a good rapport with your creditors play into that at all or does it just depend on the company that you are settling with?
How quickly you can see your credit score bounce back will have nothing to do with relationships. And the company you settle with is not really a factor for credit scoring either.
I also want to add that I do have student loans that are also current.
Hi! My husband and I have currently been going through a debt consolidation program with Freedom Debt Relief for a little under a year now. Before this, we both had A1 credit. We are looking to relocate to another state, and of course, will need to purchase a new home and I’m just wondering how hard that’s going to be to accomplish. We currently have a mortgage that we’ve always been current on, and will be selling that house, and we also have 2 auto leases that we have also always been current on, in addition to a few small credit card bills that are not included in the debt program, and are current. When we relocate, I will be receiving a lump sum of money that I plan to use to pay off my debt program. Hopefully, that will also help my dilemma. Please give me as much advice or info that you have on this type of situation.
Who are the remaining debts owed to, and what are the balances?
You are going to run into trouble trying to get a loan approved when their are unresolved collection accounts still showing on your credit reports. That lump sum of money is certainly going to be helpful, but not timely enough if you do not have the money before arriving in the new state (if you are looking to buy right away).
I can help you with more strategy if I know whats left to settle and how long before you move.
I still have approximately 25-30,000 to settle. These accounts include a few Chase accounts, Bank of America, and Synchrony Bank. I’m looking to move by September.
If the remaining unpaid balances total 30k, and you could resolve those for, say 9k now, can you pull the money together? It will mean increasing the chances you could accomplish your goal in September.
It would be best to negotiate those settlements before your current house is listed (if not already listed for sale).
You can call me for a consult if you like at 800-939-8357, option 2 rings to me. You can also fill out the consult request form in the right rail of the site.
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
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.