Can You Get a Credit Card After Debt Settlement?

How to Use Credit Cards Wisely
BY Aaron Crowe
Apr 12, 2023
Key Takeaways:
  • A secured credit card is the easiest type of credit card to get after debt settlement.
  • Keeping credit card balances low and paying on time will help raise your credit score.
  • Many credit card issuers offer second chance cards and credit building cards.

Graduating from a debt settlement program is reason to celebrate. Bake a cake, invite some friends over and be proud of your accomplishment. Or at least pat yourself on the back. Now is the time to put your improved financial habits to use and make good financial choices. 

Getting a credit card after debt settlement is another way to celebrate and can help make your financial life a little easier. It’s not difficult if you follow a few rules and tips.

How does debt settlement affect your credit score?

In the short term, your credit score may drop during debt settlement. A four-year study by Freedom Debt Relief (FDR) revealed that debt settlement client FICO scores fell a median 161 points during the first six months of enrollment, eventually improving by a median 191 points to end up higher than before enrolling. 

The amount of damage you can expect depends on where your credit score is before enrolling in debt settlement. If your credit score is high and you stop making payments on your accounts, it'll likely plunge sharply. If you’re already missing payments, your starting score is lower and you’ll probably notice a much smaller drop.

What credit score do you need to get a credit card?

Credit card companies establish guidelines for every card they offer, and minimum credit score requirements vary. You won’t qualify for most mainstream credit cards following debt settlement. 

However, there are credit card companies offering second chance or credit-building cards to people like you—consumers with low credit scores (or even no credit score) who are ready to successfully manage a new account.

How to build credit with a secured credit card

Most credit cards marketed as second chance or credit building are secured credit cards. These  require you to put up a security deposit to cover some or all of your credit limit. Secured credit cards can have hefty fees, so shop carefully and choose an affordable option. They’re out there.

The card issuer will only touch this deposit if you fail to pay your account as agreed. You use the card just like you would a traditional card and make payments every month. Secured credit cards don’t look any different than “regular” credit cards, and no one can tell when you use them that they are secured cards.

By making small purchases with the card and paying your balance off every month, you’ll build a solid repayment history. When shopping for a secured credit card, make sure that it reports your payments to all major credit bureaus to improve your credit scores. 

Manage a secured card successfully for six to 12 months. At that point, your card issuer may return your deposit and convert the account to a regular unsecured credit card. Or it might increase your credit line without requiring more money from you. Or you can apply for an unsecured card yourself and close the secured account to get your deposit back and potentially save on fees.

How do you use a credit card after debt settlement?

Understand that you shouldn’t use your secured card to pay for things you can’t otherwise afford. You’re using it to build a good credit score and eventually qualify for other types of credit like auto loans, prime credit cards, personal loans, and mortgages. 

Don’t blow it! Use your new credit card for small purchases and pay off your balance every month. Payment history is the biggest factor in a FICO Score. Some other ways to best use a credit card after debt settlement include:

  • Don’t use too much of your available credit, called amounts owed or credit utilization. This is the second biggest factor affecting your score. People with good credit typically have low utilization. Use your card sparingly and never max it out.

  • Don’t take on new credit if you’re struggling to pay off your current balances. Avoid carrying balances (and paying interest) whenever possible.

  • Check your credit reports for free to make sure the data is accurate and that you’re not a victim of identity theft.

  • Apply for credit cards sparingly. As your credit score grows, creditors will contact you with offers for their cards. Every time you accept an offer and apply, you generate a hard credit inquiry, which drops your credit score.

  • Sign up for automatic payments on your card to avoid missing payments or making them late. You can also sign up for automatic reminders of payment due dates.

  • Avoid unnecessary fees or paying high interest rates. You can keep costs low by understanding your card agreement, paying on time, never taking cash advances, and paying off your balance as fast as possible.

Frequently Asked Questions

Is it a good idea to be an authorized user on a credit card?

Yes, if the account holder has excellent credit. That’s because their good payment history transfers to your credit report and can help your score. Being an authorized user technically allows you to use the credit card of a relative or friend. However, you don’t need to use it or even know the account number to reap the benefits of the account holder’s payment history. 

The account holder is responsible for the card and will have to pay for any charges that you make, so don’t abuse your privilege and pay what you owe if you charge on the card.

Can you open a credit card after debt consolidation?

Yes. Debt consolidation often reduces your credit utilization and improves your credit score. However, debt consolidation can be dangerous if it tempts you to run up your balances again or take on additional debt.

If you have bad credit, you might only qualify for credit cards with high fees and interest rates. A better option may be a secured card, where a security deposit you provide is the collateral and credit limit for the card. 

How long does it take to build a good credit score?

“Good” is a relative number, depending on where you’re starting from. Most lenders consider a good credit score to be 670 to 739. Above 760 is considered excellent. Establishing your credit score from scratch can take several months, and several years to build and maintain it.

You can speed up the process by opening up a credit account, keeping your balance low, and paying on time every month. Almost half of Americans have FICO scores of 740 or better, and so can you in time.