If you have recently gone through debt settlement in the UAE, you might be wondering about your credit score. It’s normal to feel concerned, and debt settlement can impact your credit score significantly.
But over time, you can raise your credit score. The most important query is: How long does it take? Let us delve into this subject and examine what to anticipate following a debt settlement.
Understanding Debt Settlement and Credit Scores
Debt settlement means your credit, so when you settle a debt, you are agreeing to pay less than what you owe. This helps you get out of debt, but it also sends a message to future lenders. It tells them you didn’t pay the full amount you borrowed. Your credit score suffers as a result.
The Initial Impact:
Right after debt settlement, your credit score will likely drop. This drop can be significant. We are talking about a possible decrease of 100 points or more.
Though it may be difficult to accept, keep in mind that it is temporary. Your credit score can and will recover with time and effort.
The Timeline for Improvement:
Let us now address the core of the issue. How long does it take for your credit score to improve after a debt settlement? The truth is, there’s no one-size-fits-all answer. It depends on several factors.
These include your credit history before the settlement, how many debts you settled, and what you do after the settlement.
Generally speaking, you might start seeing improvements in your credit score within 12 to 24 months after debt settlement.
However, significant improvements often take longer. Many people see their scores return to pre-settlement levels within 3 to 7 years.
Factors Affecting Recovery Time:
- Your Starting Point: If you had a good credit score before debt settlement, it might take longer to bounce back. On the flip side, if your score was already low, you might see improvements sooner.
- Number of Settled Debts: The more debts you settle, the bigger the impact on your credit score. This means it might take longer to recover if you settle multiple debts.
- Your Actions After Settlement: This is where you have the most control. The steps you take after debt settlement can speed up or slow down your credit score recovery.
Steps to Improve Your Credit Score Faster:
Pay Bills on Time
This is a crucial part, so set up automatic payments if you need to. On-time payments have a big positive impact on your credit score.
Keep Credit Card Balances Low
Make an effort to use no more than 30% of your credit. This shows lenders you are responsible with credit.
Don’t Close Old Accounts
The length of your credit history matters. Keeping open previous accounts can improve your rating.
Avoid New Credit Applications
Every application may result in a slight decrease in your score. Applying for new credit should be done carefully.
Consider a Secured Credit Card
This can help you rebuild credit, so just make sure to use it responsibly and pay it off each month.
Check Your Credit Report Regularly
Look for errors and dispute any you find. Mistakes can drag down your score unnecessarily.
Realistic Expectations and Milestones While Improving Your Credit Score
While improving your credit score takes time, you can expect to see some milestones along the way:
- 6-12 months: You might see small improvements if you are consistently paying bills on time.
- 12-24 months: More noticeable improvements can occur if you are managing credit responsibly.
- 2-4 years: Significant improvements are possible, especially if you have added positive credit information.
- 5-7 years: Your score could be back to where it was before the debt settlement, or even better.
Conclusion
Improving your credit score after debt settlement takes time, but it’s entirely possible. While the initial impact on your score can be harsh, recovery is within reach.
It typically takes 12 to 24 months to see noticeable improvements. Significant recovery often occurs within 3 to 7 years.
Concentrating on what you can influence is crucial. Pay your bills on time, keep your credit utilization low, and void new debt. These actions will help your score recover faster.
