Here’s Your Secret Credit-Rebuilding Weapon After Debt Relief

Completing a debt settlement program means you now have fewer bills to pay, and some or all of your debts are now behind you. It’s a major milestone on your path toward financial stability, and you might feel as if a great weight has been lifted off your shoulders. Getting past your debt probably made you feel great.

Now, you’re ready for the next phase of your financial recovery. Debt relief probably caused your credit score to drop. A lower credit score doesn’t have to be forever. In fact, one crucial move could put you back on track to building a good credit score: making on-time payments. 

Here’s how. 

Freedom Debt Relief is not a credit repair organization and does not provide or offer services or advice to repair, modify, or improve your credit.

Payment History Is the Biggest Part of Your Credit Scores

When you apply to borrow money, a lender wants to know how big a risk they’re taking. Namely, are you likely to repay the money you borrow? That’s where your credit score comes in. 

We all have multiple credit scores, and the two you often hear mentioned are FICO and VantageScores. They weigh similar factors to generate your credit score. For both kinds of credit scores, the most important factor is your payment history. 

Payment history is exactly what it sounds like: Have you paid your bills? And if so, have you paid them on time?

If you don’t pay on time, your credit score is likely to be negatively impacted. 

If you’re just a few days late, you might have few consequences other than a possible late fee. Credit card issuers don’t report your late payment to the credit bureaus until you’re at least 30 days past due date. 

The three consumer credit bureaus—Experian, TransUnion, and Equifax—create credit reports. Your credit scores are based on the information in those credit reports. Late payments stay on your credit reports for seven years. The impact of a late payment lessens over time. Creating a history of on-time payments could help you improve your score. And getting in the habit of on-time payments is easier than you might think. 

How to Make On-Time Payments Easier

Ready to start rebuilding your credit? Here’s how to approach it. 

Create a budget

Budgeting is a basic personal finance move. A monthly household budget could help you prioritize your paychecks and show you where you spend. Reviewing your budget is a way to funnel your money toward the expenses that really matter to you, like travel or a long-range financial goal such as retirement. 

You’ve got several ways to make a budget. Pick the one that’s most appealing to you. 

• Easy budgeting apps that sync with your bank account 

• Spreadsheet on your laptop

• Notebook and calculator 

Once you know what money comes in, what money goes out, and where it goes, it’ll get easier to make those on-time payments. 

Set up auto-pay

If you want to stop worrying about whether you’ll be on time with that credit card payment, consider setting up automatic payments on a set date of the month. You can create this online through your credit card issuer’s or lender’s website, or through your own bank’s bill pay. When you set it up, you could choose to:

• Pay the minimum each month

• Pay a set dollar amount 

• Pay the full balance

If your payment amount could change but you want to protect yourself from late payments, use the minimum payment option. That way, you can be assured that at least the minimum payment will be satisfied each month. You can (and should) then log in to make additional payments whenever you choose.

Pay less more often

You might be able to handle smaller, more frequent payments. One method is paying each time you get paid, whether weekly or biweekly. Paying more often helps you get ahead of late payments. It’s also a good way to stay on top of your balances. This doesn’t require you to pay double. You could still pay the same amount, so you’re not giving up more cash—you’re just splitting the payment into smaller parts. 

Other Moves That May Help Your Credit

Here are a few other ways to boost your credit after you’ve been through debt relief. 

Consider a secured credit card

A secured credit card looks and works just like any other credit card, but you have to pay a cash deposit to get it. For many secured cards, the credit limit is equal to the amount of your deposit. If you use the card, you still have to pay the bill (at least the minimum each month). Secured credit cards are pretty easy to get. As you spend and make on-time payments, you’ll build a positive payment history. After six months or a year, you can apply for an unsecured card and the return of your security deposit. 

Keep credit usage low

It’s a good idea to be cautious with credit, especially after debt relief. Consider using credit for one or two small bills a month, like a streaming service or your cell phone service, and pay off the entire balance each month. Credit card balances affect credit scores, too, so keeping yours low could help you rebuild. 

You Can Work Toward Great Credit—Start Today

A low credit score in the wake of debt settlement doesn’t have to be forever. It’s the starting point of a better financial future. Settling your debts could put you on better financial footing going forward, making it easier to keep up with your bills in the future.

You’ve already got the tools to create a good credit score and benefit from it—such as by getting lower interest rates and access to better credit products.