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How Do I Repair My Credit After Debt Settlement Lowered My Credit Score? – Dominic

“Dear Steve,

In an agressive debt settlement program and plan to be out of debt in 12 months (already 3 months in). They have already settled one of my credit card accounts with two more to go. I’m paying in about $1800 per month to the escrow account. I just want to be debt free! It does seem to be working – but we shall see… Assuming it works, I worry about my credit score. I have some consumer credit cards that I’ve been using and paying off each month and am current on my car/rent/utility payments. I’m not sure what I can do NOW to improve my credit and what I can do post-settlement to restore my credit. I had an awesome score and was super responsible. But I lost to the credit game and couldn’t keep up in the end. It was this or bankruptcy. I need tips that I can do today to help with my future score and I AM responsible. I just had a series of bad knocks that maxed my cards out.

What are your opinions on credit repair services? I’m in a settlement program that will end in 9 months and it does look like I’ll be “in the free and clear” though my credit score took a huge hit from the process. Any advice on getting that back up to the 700 range I used to have?

Dominic”

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The Answer

Dear Dominic,

Credit repair services are a waste of money. The core of the issue is that playing the game to try to get accurate but negative information removed is problematic. First, if you remove negative but accurate information and then used the untrue credit report to apply for credit you have just committed credit fraud. Second, there is no telling when that removed information will simply reappear on your report.

Just because information is bad doesn’t mean it gets wiped off. It’s like a report card in school. If you got a D on a test it doesn’t vanish. To increase your GPA you get better grades moving forward.

The same is true in the credit report game.

If you follow the suggestions in this article you’ll be fine and have a better score, the right way, in a relatively short period of time.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

Big Hug!

How Do I Repair My Credit After Debt Settlement Lowered My Credit Score?   Dominic
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Roxie

    So just to give an update on my progress so far. I have settled 2 cards so far.  1 card was 16K and was settled for 2k. The 2nd card was for 34k and was settled for 14K (still paying this off now – this was the card my mom was sued for!!)  Now on to my remaining cards. I have 5 with collection agencies now and waiting for the other 5 to get there also. I have about 40K left to settle.  First thing Monday morning I was served by Citi. I have a 10K card with them and they decided to sue although they were in the negotiation process with the lawfirm I’m using to settle my debts. Last payment was made on these cards in November 2010 and they are just now going to collections. My credit scores were between 680 – 700 at the start of this and now they are all in the 520s.  I can’t wait for this to be over so that I can SAVE and move forward.  Prior to this I never missed or was late on a payment. Looking forward to finally being DEBT FREE.  I will update again soon.

  • Roxie

    Thank You for posting your updates and your experiences

  • Roxie

    THank you so much! I am just starting the settlement process. My parents both started the process 3 months ago and my mom is already being sued so needless to say I’m nervous. We’re using a law firm but i man is this stressful. I’m just starting to get the phone calls since I’ve missed one payment.. But again thank you for your updates. I have $90k in debt im trying to settle and hope to knock it out within a year also. I can’t wait to be debt free!!!

  • Dominic

    OK – so this is a long overdue update. I am done with my settlement program. I did end up getting sued by one of the banks but I quickly settled it by taking a loan against my 401k. My credit scores are back up in the 750-800 range, and I am completely debt free and feel like while I did end up paying a ton, the settlement company did lead me through this process and seemed to have my interestes in mind when negotiating settlements.

    I think the trick to working with these debt settlement companies is to go agressive. I don’t know what would have happened had I not had the 401k to borrow against, however. Either way – the whole experience was pretty difficult with the collectors, etc. I am glad to have this behind me, and am loving my secured cards w/ rewards. Thanks for all your advice, Steve!

    Dominic

  • Dominic

    OK – so this is a long overdue update. I am done with my settlement program. I did end up getting sued by one of the banks but I quickly settled it by taking a loan against my 401k. My credit scores are back up in the 750-800 range, and I am completely debt free and feel like while I did end up paying a ton, the settlement company did lead me through this process and seemed to have my interestes in mind when negotiating settlements.

    I think the trick to working with these debt settlement companies is to go agressive. I don’t know what would have happened had I not had the 401k to borrow against, however. Either way – the whole experience was pretty difficult with the collectors, etc. I am glad to have this behind me, and am loving my secured cards w/ rewards. Thanks for all your advice, Steve!

    Dominic

    • Roxie

      THank you so much! I am just starting the settlement process. My parents both started the process 3 months ago and my mom is already being sued so needless to say I’m nervous. We’re using a law firm but i man is this stressful. I’m just starting to get the phone calls since I’ve missed one payment.. But again thank you for your updates. I have $90k in debt im trying to settle and hope to knock it out within a year also. I can’t wait to be debt free!!!

      • Roxie

        Thank You for posting your updates and your experiences

      • Roxie

        So just to give an update on my progress so far. I have settled 2 cards so far.  1 card was 16K and was settled for 2k. The 2nd card was for 34k and was settled for 14K (still paying this off now – this was the card my mom was sued for!!)  Now on to my remaining cards. I have 5 with collection agencies now and waiting for the other 5 to get there also. I have about 40K left to settle.  First thing Monday morning I was served by Citi. I have a 10K card with them and they decided to sue although they were in the negotiation process with the lawfirm I’m using to settle my debts. Last payment was made on these cards in November 2010 and they are just now going to collections. My credit scores were between 680 – 700 at the start of this and now they are all in the 520s.  I can’t wait for this to be over so that I can SAVE and move forward.  Prior to this I never missed or was late on a payment. Looking forward to finally being DEBT FREE.  I will update again soon.

  • dominic

    Mint.com + (the still private – invite only) CreditSesame.com have been instrumental to my credit recovery and financial awareness. I can NOT over emphasize the need to budget and get a grip on your financials. Those little things add up (quit smoking seeing that I was spending so much on such a stupid habit)… Granted, You do NOT want to be around me on day 41. But it will get better and is. But I digress.

    Anyways, gotta say in retrospect I could have done this on my own, but I’m busy and think FCS took care of me, though it was an expensive choice. I have one account left to settle (Discover – HORRIBLE they are). My credit score is now 728. That makes me VERY happy as when I entered into credit settlement it was in the low 600′s. It did drop down to 500-ish until the two (out of three) accounts were settled which basically locked me in terms of credit.

    Sum of the story – I guess if you just have unsecured credit < 35k and are able to be super aggressive this makes sense.

    Ps – I very much dislike discover!

    Be smart,be debt free, be FREE!

    Dominic

  • Michael@CRN

    Hi Dominic,

    Here is an excerpt from an article I wrote last year on this topic. This section applies to what you are going through.

    “Debt Settlement:
    Settling debts for less than the balance requires you to be behind in payments. Since another 35% of your credit score is factored on repayment history, your credit report and score is going to get clobbered! The clobbering itself and the duration of the pain will be different for each person. Once you achieve zero balance reporting, your credit score will begin to improve. How long it will take to improve will depend on several factors, such as:

    * How long you went delinquent before a zero balance was reported
    * Was the account charged off (settling debt inside of 6 months delinquency is optimal)
    * Was it sold after charge off and re-reported (original creditor reports the charge off and the debt collector reports as well)
    * What accounts were current during the settlement process (mortgage, car payment, other)
    * What was the depth of your positive credit history (have you had cars, mortgages etc… paid off in the past)
    * Did you take prudent steps to rebuild credit along the way

    My experience has shown that roughly 18 months after completing the last settlement, and the zero balance due reporting, you’re in decent credit shape again, when contemplating legitimate needs. I have seen CRN members qualify for FHA funding on a new home purchase 9 months after finishing their settlements (focusing on the above 6 items) . The primary reason for this is that your debt to income is in better shape, and the math shows you can comfortably service the mortgage. This aspect should be considered by those who have been turned down for a modification on an existing home loan based on their DTI, and who have resources that can be creatively deployed.”

    The full article can be viewed here:
    http://debtbytes.consumerrecoverynetwork.com/category/credit-reports/

    All the best in your future success!

    Michael

    • dominic

      Mint.com + (the still private – invite only) CreditSesame.com have been instrumental to my credit recovery and financial awareness. I can NOT over emphasize the need to budget and get a grip on your financials. Those little things add up (quit smoking seeing that I was spending so much on such a stupid habit)… Granted, You do NOT want to be around me on day 41. But it will get better and is. But I digress.

      Anyways, gotta say in retrospect I could have done this on my own, but I’m busy and think FCS took care of me, though it was an expensive choice. I have one account left to settle (Discover – HORRIBLE they are). My credit score is now 728. That makes me VERY happy as when I entered into credit settlement it was in the low 600′s. It did drop down to 500-ish until the two (out of three) accounts were settled which basically locked me in terms of credit.

      Sum of the story – I guess if you just have unsecured credit < 35k and are able to be super aggressive this makes sense.

      Ps – I very much dislike discover!

      Be smart,be debt free, be FREE!

      Dominic

  • Dominic

    OK, I couldn’t wait to find out. The damage is definitely done! I subscribed to a free 30-day trial to IdenityGuard.com to get my scores this morning. Here is my breakdown:

    August, 2009: Average score was about 720. I had one 30-day late on record and carried about 70% balance on my $35,000 total unsecured credit (those three cards). 15 years of good credit up to this point (I’m 32) including several paid/or current auto loans and several zero balance consumer cards still open.

    September, 2009: Was laid off. (what fun)

    December, 2009: Maxed the cards out (not fun) and was completely out of resources. Credit score dropped to about 660 at this point.

    January, 2010: Got a new job (albeit a much lower paying one) – enrolled in debt settlement as the minimum payments were not feasible anymore. Again, this is super aggressive as I plan to settle $35k in debt in 12 months by making $1800 monthly payments to the escrow.

    May, 2010 (now): Scores are the following:
    Equifax: 568
    Experian: 591
    Transunion: 624

    Wow. Just wow. I have heard my scores will go up *a little* when the accounts are reported as “settled” or the like. True? Either way, I’m working hard on rebuilding my score. What is a decent score to say, get an OK mortgage or be able to rent an apartment?

    As always, THANK YOU!
    Dominic

    • Dominic

      Just an update – my credit scores haven’t changed since last month, but Federal Consumer Relief has just settled one of my three credit cards for about 50% of what I owed (6 months after going into the program). They should be setting another in the next month or two. That’s reassuring as I was getting a little nervous about them actually DOING anything (but they clearly are).

      Once that reports as “Settled” in a few months, I expect my score to go up a bit. I’ll keep you all posted!

      Thanks,
      Dominic

  • Dominic

    Steve,

    Thank you very much! I just applied to three secured cards that promise to report to all three credit agencies. $500 for the first two and $2000 for the last. The fees are a little steep (the first two charge $9.95 per month, but no other fees and the second just charged a one-time $75 application fee). I will now be using (and paying off) these rather than using my debit card as I have for the past few months. I’m running my consolodated credit report next month once all of my accounts officially pass the 90 day late mark (I figure that’s the lowest my score/report will go). I’ll update you all with that score and the progress I make as I use these cards. Thank you again, Steve. You are performing a wonderful service for a LOT of people!

    Dominic

    • http://GetOutOfDebt.org Steve Rhode

      Dominic,

      Thanks for the pat on the back.

      The cards are pricey but once your score improves back above 700 you can consider canceling them. It’s just the price you pay to rebuild your credit fast.

      And yes do keep me posted along the way. I’m really interested in your rebuilding experience. It would be great when you get your score to share it so we can track how it improves.

      Steve

      • Square

        What are the names of the cards your referring to?

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