While debt settlement can often be the best means of avoiding bankruptcy or foreclosure, it can also mean doing significant, lasting damage to your credit. Failure to pay bills—a crucial step in the debt settlement process—can severely damage an individual’s credit score. Therefore, the last important step of a debt settlement negotiation is to repair your credit.
Check Your Credit Report
Credit scores are based on five different factors. The first, and most significant part of the credit score, is payment history, which accounts for 35 percent of the score. Second is the amount of debt, which is 30 percent of the credit score. Next, the age of credit history is 15 percent and, lastly, types of accounts and any new credit applications account for 10 percent each. Any part of this score that may be damaging to the overall result can usually be discovered by reviewing the credit report.
Checking your credit report should always be the first step in repairing damaged credit. A credit report will contain any negative information that might be lowering your credit score. Individuals can then make a list of damaging factors and attempt to find ways to rectify them.
When reviewing your credit report, it is very important to look for any potentially inaccurate information. Such errors could damage your credit score unnecessarily. The most common errors pertain to how the debt settlement is reported. Any errors should be immediately disputed with the credit bureau.
Even if such information cannot be disputed or immediately rectified, there is still hope. Negative information disappears from credit reports after seven years, or ten years if you filed for bankruptcy. This means that the credit score will, eventually, go back up; it will not remain damaged forever.