I did a settlement on my credit card after it had already been charged off; how can I improve my credit score now?
I just did a settlement on one of my credit cards, but this was after it had already been charged off. I've read negative things about how this can impact my credit score. Is there a way to improve my credit score now, and how can I take it off my credit report?
You are correct, this can have a negative impact on your credit score and unfortunately you won't be able to take it off. The only thing you can do is manage your credit well going forward and allow time to pass. In addition to paying creditors on time, keep the balances of your credit cards as low as you can in relation to the limit, even if you have to move some balances around. If you have credit cards that have been open for a long time, keep them open and use them from time to time on something you were going to pay for anyway, like gas, and then pay it in full at the end of the month so that you don't accrue interest.
Just a heads up, the creditor that you settled with is very likely going to send you a 1099-C Cancellation of Debt form for the tax year when the settlement occurred for the difference between the amount owed and the amount settled for. For example, if you had a card with a $5,000 balance and settled for $2,000 you will likely get a 1099-C for the $3,000 difference. This is going to be considered taxable income which you will then claim on your tax return. The IRS has what they call an insolvency exclusion. If you qualify, you can exempt forgiven debt from your taxable income. This is done by filing IRS Form 982. I suggest you fill out the Insolvency Worksheet so that you have all of the information you need in order to determine if you'll qualify for the exclusion. You can use the following link to download the form and read more about the IRS guidelines on forgiven debt: https://taxmap.irs.gov/taxmap/pubs/p4681-002.htm#en_us_publink100052679
One way to rebuild your credit after a mistake such as a charge-off is to get some positive items on your credit report. Have you maintained any current credit cards or loans, if so, continue paying them and remember it is vital that you pay them on time. The same thing goes for accounts that aren’t reported to the credit bureaus, because these items can end up on your credit report if you fail to make your payments.
Try getting New Credit.
You may have difficulty in getting credit with negative items on your report. There are several credit card issuers who offer credit cards for those who need to rebuild their credit. Look to open a secured credit card. This will help, but again remember to pay back and pay on time.
Understand that with time, your credit score will improve as you use your credit cards and pay on time every month. This won’t happen overnight but you can view your progress by signing up for a free credit scoring service like Credit Karma or Credit Sesame.
I hope this helps!
-Jason M. Fields
Whenever you do a settlement, as part of the settlement, you get them to agree to remove it from your credit report ASAP once payment has been made. But you should do this before you pay them as part of the negotiations. Onced paid, then you can have them remove it. Now that you have already paid them though, you need to call them up & ask them to remove the deliquency off of your credit report. I am unsure of their obligation, but have had people tell me that they negotiated removal before making payment.
Best of luck, Dan Stewart CFA®
If the settlement information on your credit report is correct, you can't have it taken off (if it's in error, you can dispute the information, of course). The only way to improve your score is to manage your credit well going forward. Pay all of your debts on time every month. Don't apply for a lot of new credit accounts. Keep your utilization percentage low, even if that means you need to make mid-month payments on your accounts.
Over time, these actions will improve your credit score. Eventually, the bad information will roll off of your credit report and it will be replaced by the newer, better information.
Thanks for the question!