How to Boost Your Credit After Settling Debts

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.

A strong credit score could make your financial life a lot easier: You have a better chance of snagging apartment rentals, attractive credit card offers, and better terms and lower interest rates on mortgage and auto loans. But securing a “good” score of 670 to 739 or above isn’t always easy. 

People who settle their debts can face an added challenge, since they often see their credit scores drop as a result of delinquent accounts. While the size of the decrease can vary widely based on your credit history, it’s not uncommon for scores to fall by 100 points or more.  

Still, a drop in your credit score is no reason to panic, since you can build it back. Here are seven ways to boost your credit score after settling your debt. 

1. Understand how the credit score is calculated 

The first step to improving your credit score is understanding how it’s calculated. 

Kassi Fetters, a financial planner based in Anchorage, AK, puts it simply: “Your credit score is formulated based upon multiple factors with the two highest weighted factors being on time payments and your total current debt level. If you want to increase your credit score then make your payments on time and keep your debt paid off.” 

Though you can also dig deeper. FICO and VantageScore are the most popular credit scoring systems, with most creditors using the FICO system. FICO considers several factors, each with their own weighting: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). 

2. Make your payments on time 

Because your payment history makes up such a large chunk of your credit score — and because late payments stay on your report for seven years —  it’s super important to pay your bills on time. 

The type of bill matters when it comes to how it will impact your credit. Utility companies don’t report your activity to the three major credit bureaus (Experian, TransUnion and Equifax), unless you miss so many payments that the company shuts down your account or your debt goes to collections. So paying an electric or water bill late here and there likely won’t affect your credit. 

But borrowing is taken a bit more seriously: Just one missed or late credit card bill can affect your score, though usually not until 30 days after they’re due. (Of course, while missed payments won’t affect your credit score until you’re more than 30 days late, you can get hit with late fees earlier than that.)

An easy way to make sure you don’t blow past a payment due date is to set up automatic payments. Many credit card companies will allow you to choose a payment date, which lets you stagger your payments throughout the month instead of handing over a huge chunk of money in one day. It’s best to pay off your entire credit card balance to avoid falling into the cycle of accruing expensive interest, but at the very least be sure to pay the minimum. 

3. Keep your debt down 

The percentage of how much credit you’re using versus what is available to you — also known as your credit utilization — can also impact your credit score. If a large amount of your credit is being used, banks and other lenders may interpret this as you being “overextended” and more likely to miss a payment or pay it late, according to FICO. 

To be clear, debt can be part of a healthy financial plan, as long as you're staying on top of your payments. Mortgages and student loans, for example, are considered “good” debt, since what you’re getting out of them can increase in value (a home, or an education that can lead to a higher-paying job). But Fetters recommends not racking up debt on depreciating items.

“That new pair of pants is worth almost nothing after walking out of the store,” she says. 

Another way to potentially improve your credit utilization is to increase your credit limit, or how much you’re allowed to borrow. Credit card issuers will sometimes give your credit limit a boost automatically if you have regularly made on-time payments, but you can also ask for one. The trick here is to maintain a similar spending pattern on the account so that the amount of credit you have increases but the amount you use stays the same. If you’re still working on spending within your means, then you should probably hold off asking for a credit increase since it could lead to you falling further into debt.

4. Maintain a long credit history 

Credit scoring models take into account how long your accounts have been open, so closing your older ones can hurt your score overall. 

Sometimes, you don’t have a choice. Once you pay off your home, for instance, your mortgage servicer will close your account. But you can opt to keep a credit card account open even if you no longer plan to use the card. Just try to swipe it every few months or put a small recurring payment, like one from a streaming service, on there to keep it active. 

Depending on your card issuer, you may be able to upgrade or downgrade your card so that you can get new perks like better rewards without actually closing the account. 

5. Diversify your debt 

Lenders like to see that you’re able to manage a range of different types of debt, which is why “credit mix” makes up 10% of your FICO score. 

There are two main types of credit: revolving and installment. Revolving credit, such as a credit card or personal line of credit, allows you to borrow money, pay it off, then borrow again within your credit limit. But installment credit, such a mortgage, provides you with a certain amount of money upfront that you pay off in installments over time. A good “credit mix” will have some of each. 

If you’re having trouble getting approved for new accounts, you can ask to be added as an authorized user on a family member or friend’s card, and your record will get a helping hand from their on-time payments. (But remember the reverse is true, too. If they fall behind on payments, that will affect you.) Another option is to open a secured credit card, which can help you build up a history of on-time payments with some guardrails.6. Be careful when opening new accounts.

Even though opening new accounts can improve your credit mix, you need to be careful. Once you’ve settled your debt, it’s important to make sure you don’t take a step backwards and end up with a bunch of new debt you can’t handle. 

Plus, if you open too many new accounts in a short period of time, a creditor may flag that as a sign that you’re not handling your debt responsibly. 

7. Dispute errors on your credit report 

There’s also the possibility that someone else can harm your credit score by opening an account in your name. In 2024, the Federal Trade Commission received 6.5 million fraud reports from consumers, including those related to identity theft and issues with credit bureaus, banks and lenders. 

You can access your credit report from the three major credit reporting bureaus for free weekly at AnnualCreditReport.com. Be sure to check that all the information is accurate and up to date. If it’s not, you should dispute the error directly to Experian, Equifax and/or Transunion with details like your contact information, the credit report confirmation number if available and a clear explanation of what is incorrect. The Consumer Financial Protection Bureau has contact information for each company, as well as a template letter you can use for the dispute.