Start My Answer

How Long Does It Take to Improve My Credit Score After Debt Settlement?

Hannah Locklear | March 28, 2024

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Debt settlement remains on your credit report for seven years, but it can take as little as 6-24 months to improve your credit score after settling. This all depends on your credit history and financial circumstances. Settling a debt will not increase your credit score, but it won’t hurt it as much as not paying at all.

For some of us, there may be a point in our lives in which we will struggle financially. Debts continue to pile up, and you may be unable to find the money to pay them off. In times like this, you may be able to settle your debt with your creditor or debt collector.

While debt settlement ensures that debt collectors will cease contacting you, it will also harm your credit score. That being said, nothing hurts your credit score more than failing to pay back what you owe.

Settle with SoloSettle

Make an Offer

Keep reading to find out how long it takes to improve your credit score after a debt settlement. But first, what exactly is debt settlement?

What is debt settlement?

Traditionally, debt settlement involves working with a debt settlement agency to settle your debts for a fraction of their total value. You start by providing the company with a list of all the obligations you want to pay. The agency will create a payment plan for you, and you’ll send them a specific amount of money each month, which they’ll put in a dedicated account for you.

However, you can also work out a debt settlement on your own without enrolling in a debt settlement program. SoloSettle can help you with this process.

While working with a debt settlement agency, you stop paying your creditors. Once you have enough money in your settlement bank account, the debt settlement company will start negotiating with your creditors one by one. You'll pay the amount due when they reach a settlement agreement with your lender.

The process repeats until you settle all of your debts and graduate from the program.

Beware: some debt settlement agencies are scammy and end up making your financial situation even worse. Some states have even had to create new legislation to govern the practices of debt settlement companies.

With SoloSettle, you can focus on one debt at a time and reach a settlement agreement on your own terms and at your own pace. In the process, you’ll end up saving money and giving yourself a financial refresh.

Check out this video to learn more about the benefits of debt settlement and how to settle a debt on your own:

Now that you have a better understanding of how debt settlement works, let’s explore how it can affect your credit.

Debt settlement will most likely hurt your credit score

The disadvantage of obtaining a debt settlement is that it negatively impacts your credit score, which is determined based on records of your accounts and loans, the terms of agreement, late payments, outstanding balances, and credit limits.

Your credit score is your creditworthiness. A good credit score is only applied to accounts that do not have late payments and are paid off according to the original terms. High creditworthiness means a lower risk for the lender or creditor, as it demonstrates that you are capable of making payments on time. On the other hand, a low credit score indicates that you are a delinquent debtor.

While obtaining a debt settlement will allow you to settle with your creditor and end your obligation on good terms, it will most likely harm your credit score as you were only able to pay a portion of your debt. Additionally, debt settlement does not erase the fact that you are a delinquent debtor as you were unable to pay your debts according to your contract or credit agreement.

As such, when your creditor reports the closure of your account due to a debt settlement, it modifies the original contract of agreement, and your credit score is affected.

You should anticipate a lower credit score after your debt settlement.

That being said, there are many factors that play into how much your credit score will drop after debt settlement. Here are some:

  • The higher your credit score before settlement, the bigger the drop. If you start the debt settlement process with a high credit score, it will end up taking a greater hit. For example, if you start with a credit score of 700 or more, your score will likely drop between 140 and 160 points. However, if your score is below 700, it will probably drop between 45 and 65 points after debt settlement.

  • The amount of debt settled will determine how much your credit suffers. For example, debts of larger amounts carry more weight in the eyes of the credit reporting bureaus. So, settling a smaller account will have a smaller effect on your credit score.

  • Your creditor plays a huge role. Some creditors aggressively report delinquent accounts and charge-offs to the credit bureaus. Others are more lenient or don’t prioritize it. If you’re lucky, you might have a creditor that agrees to report a settled debt as paid in full.

Most importantly, bear in mind that settling a debt will have less of an impact on your credit score than no payment at all. It also puts you in a better position to stay on top of future payments and build your credit further.

Are you being sued by a debt collector? Respond with SoloSuit.

How long does debt settlement stay on your credit report?

Debt settlement will remain on your credit report for seven years. This means that for those seven years, your settled accounts will affect your creditworthiness.

Lenders usually look at your recent payment history. There is a high probability that you will be affected for a couple of months or even years after settling your debts. However, a debt settlement does not mean that your life needs to stop. You can begin rebuilding your credit score little by little.

Your credit score will usually take between 6-24 months to improve. It depends on how poor your credit score is after debt settlement. Some individuals have testified that their application for a mortgage was approved after three months of debt settlement. Some needed years before they could get a new credit card or loan.

It varies case by case, and it is difficult to determine the exact timeframe required to improve your credit score. The time it takes to repair your credit score will depend primarily on your credit history.

Consider the example below.

Example: After many months of missed payments, Evan was sued by his credit card company for a debt of $5,000. He used SoloSuit to respond to the lawsuit, giving himself time to work out a settlement plan. After analyzing his income and other financial obligations, Evan determined he could afford to pay off 80% of the debt, or $4,000. Evan utilized SoloSettle to start the settlement negotiation process and sent an initial offer at 50% of the debt, or $2,500. Evan’s creditor sent a counter offer, and after a few rounds of negotiating, they reached an agreement of $3,500! Evan saved hundreds of dollars and gave himself a new financial foundation to build his credit back up.


File a response to a debt collection lawsuit in 15 minutes with SoloSuit.

Rebuild your credit score after debt settlement

6 Months or Less: There is a possibility that if you have successfully paid off most of your debts and have settled accounts, creditors may still consider you a good debtor who can pay debts on time. If you still have open accounts after debt settlement with good records, this may help you get a credit rebound and improve your credit score. Even if you have a settled account the total assessment of your credit history can outweigh this by demonstrating that you have strong, positive credit, and your credit score could improve within the next six months or less.

12 - 24 Months: If your credit history reflects that you are a delinquent debtor, you have not paid off any part of your debt, there were a lot of late payments, or if it takes you years to settle your old debts you will have an extended period to wait before your credit score improves. A poor credit history tells creditors that you are a risk, and it will probably take 12-24 months for you to improve your credit score.

Remember that as your settled accounts age, their effect on your credit report will diminish even if they are still apparent. Take the initiative not to incur new debts, and your credit score will slowly improve. It will not improve overnight, so relax and do your best to become a wise debtor during this time. Avoid obtaining new debts while you are in the period of rebuilding your credit score.

A bad credit score will pass, and this chapter of your life will only last for a couple of years. Follow the advice provided here, and you will slowly make your way to a better credit score.

You can still get a credit card after debt settlement

There is a common misconception that debt settlement will ruin any chances of obtaining a credit card in the future. While it may be difficult to open a new line of credit with a lower credit score, debt settlement does not prevent you from getting a new credit card in the future.

It may take some time to build your credit score back up to the point where you will be approved for a new credit card, but that doesn’t make it impossible or unfeasible. In fact, applying for a new credit card and staying on top of your payments can actually help you increase your credit score after debt settlement.

It’s a similar situation for people who are looking to buy a house after debt settlement.

How long after debt settlement can I buy a house?

Technically, you can buy a house at any time after debt settlement. That being said, it might not be the best move, and it could be difficult to get the financial assistance that is generally required to purchase a home.

Since a debt settlement typically remains on your credit score for seven years, it can be difficult to find a lender who is willing to help right away.

However, if you stay on top of your financial obligations and prove that you are a trustworthy borrower, you can surely find a lender who is willing to work with you.

You have to pay taxes on debt settlement

Generally, if you have settled a debt for less than the original amount you owed, then the amount of the forgiven debt is taxable. You must report any canceled, forgiven, or settled debt to the IRS on your tax return for the year it occurred.

Exclusions to paying taxes on debt settlement include the following:

  • Debt that was canceled as a part of a chapter 11 bankruptcy case is not taxable.
  • When the debtor is insolvent (their total liabilities exceed their total assets), they do not have to pay taxes on settled debt.
  • The debt amount was incurred directly in connection with the trade or business of farming, also known as qualified farm indebtedness.
  • The debt amount was incurred to acquire, construct, reconstruct, or improve real property, also known as qualified real property business indebtedness.
  • The debt amount was incurred to buy, build, or substantially improve your home, also known as qualified principal residence indebtedness (this rule is subject to change beginning January 1, 2026).

Similarly, exceptions to paying taxes on debt settlement may apply, such as:

  • Debt that was forgiven as a gift, bequest, or inheritance
  • Some student loan debt
  • Qualified price reduction to the purchase of a property, given by the seller
  • Debt that would be deducted if you were to pay it as a cash basis taxpayer

So, before you settle a debt with your creditor or a debt collector, consider the tax implications. Chances are you’ll have to pay the difference in taxes the following year.

Let’s take a look at an example.

Example: Janice owed LVNV Funding $5,000. She used SoloSettle to settle her debt with LVNV Funding for just $3,000. Since the debt came from using a credit card, Janice was not eligible for any of the tax exclusions or exceptions of debt forgiveness. As a result, she had to report the $2,000 difference to the IRS as part of her income the following year and pay taxes on it.


How much should I offer to settle debt?

We asked an attorney, John Skiba, how much you should offer to settle debt, and here are some tips he shared.

When considering how much to offer to settle a debt, it largely depends on whether you're dealing with a junk debt buyer or the original creditor.

For junk debt buyers, a low settlement could be around 10% of the total debt, but more typically, offers between 30% and 40% are accepted, especially if you can pay in a lump sum shortly after reaching an agreement.

Original creditors usually expect higher settlements, around 50% to 75% of the total balance, particularly for lump sum payments. Payment plans are an option but often result in paying more over time.

It's important to propose a realistic plan based on your budget, without overcommitting to an amount you cannot afford. Always initiate the offer rather than waiting for the creditor, as their starting position is often to expect full repayment.

Watch the following video for more information on how much to offer to settle a debt:

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

How long does it take to rebuild credit after paying off debt?

It takes around 30 to 45 days to rebuild credit after paying off debt.

After you've paid off a debt, it generally takes about 30 to 45 days for your credit score to reflect the change. This is because lenders and banks take time to report your updated debt status to the credit bureaus. The exact time for your credit score to improve depends on various factors, including the type of debt and when the lender reports the payment.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Settle your medical debt

Having a health challenge is stressful, but dealing medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Federal debt collection laws can protect you

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Get debt relief in your state

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt state guides

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote a guide on each state’s statutes. Check it out below.

Statute of Limitations on Debt Collection by State (Best Guide)

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

Other wage garnishment resources

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

How to repair and improve your credit score

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt.

How to resolve student loan debt

Struggling with student debt? SoloSuit’s got you covered. Below are resources on handling student loan debt.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources


Not sued yet?

Use our Debt Validation Letter.


Out Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.


Let's Do It

It only takes 15 minutes.

And 50% of our customers' cases have been dismissed in the past.


"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather



Get Started