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Rebuild Credit After Debt Settlement to Buy a Home

Rebuild Credit After Debt Settlement to Buy a Home
Betsalel Cohen
UpdatedSep 13, 2019
Key Takeaways:
  • Even when your credit has taken a severe hit, taking the right steps will lead to excellent credit within two years.
  • Establish new accounts. Pay on time. Keep balances to 10% or less of your account limit.
  • In addition, improve your DTI and save money for a downpayment.
How can I rebuild my credit and buy a house after completing debt settlement?

I'm two payments away from being debt free and I used Freedom Debt Relief to get there but now what do I do to repair my credit. I started the program in 2009 settling and paying off $41000.00 of divorce debt and credit cards. I'm now newly remarried with a child and one on the way and have just been offered a new teaching position and we really want to buy a house so what is next?

Thank you for your question about rebuilding credit after debt settlement.

Congratulations for signing up with Freedom Debt Relief and sticking with the debt settlement  program. It is good to see that you were able to set your goals and meet them. Now, you are ready for your next goals: rebuilding your credit after debt settlement and buying a house.

In order to buy a house and qualify a mortgage loan, your lender will look closely at three factors, your credit history, credit score, and debt-to-income ratio.

Review these points to help you move from your present point of post-debt settlement, to your goal of buying a house and taking a mortgage:

  • Maintain a budget
  • Rebuilding credit
  • Buy a home - Take a mortgage

Thank you for your question about rebuilding credit after debt settlement.

Congratulations for signing up with Freedom Debt Relief and sticking with the debt settlement program. It is good to see that you were able to set your goals and meet them. Now, you are ready for your next goals: rebuilding your credit after debt settlement and buying a house.

In order to buy a house and qualify a mortgage loan, your lender will look closely at three factors, your credit history, credit score, and debt-to-income ratio.

Review these points to help you move from your present point of post-debt settlement to your goal of buying a house and taking a mortgage:

  • Maintain a budget
  • Rebuilding credit
  • Buy a home - Take a mortgage
Avoid Simple Mistakes that Harm Your Credit

Call 800-998-7497 to speak with a Money Coach and set up a plan to build your credit score and learn how to avoid common errors that will prevent you from achieving excellent credit.

Maintain a Budget

The importance of making and maintaining a personal budget is obvious to anyone who went through a debt settlement program. Your budget is an important tool in rebuilding credit after debt settlement.

Leverage your experience, by making an effort to save money with the funds you have been using to make your debt payments. Your budget categorizes your monthly expenses allowing you to get a grip on your cash flow. Make sure that you track these financial ratios:

  1. Debt-to-Income (DTI) ratio: Your debt-to-income ratio is calculated by dividing your monthly debt payments by your gross monthly income. The expenses that are used include your rent (or mortgage, property taxes, and insurance payments), auto loans or lease, revolving and installment credit, and payments resulting from legal liability, such as child support, alimony, and tax payments.

Subdivide your DTI ratio into two sub-categories for better tracking purposes:

  • Front-end debt-to-income (DTI) ratio: This represents your monthly housing costs, which is either your rent or your mortgage costs (principal, interest, insurance, property tax) divided by your monthly gross income.
  • Back-end DTI ratio: In addition to your front end expenses, including your monthly required payment for all other installment and revolving credit including credit cards, auto loans
  1. Savings-to-Income ratio: Divide your monthly savings- including retirement, investment, and regular savings plans- by your gross income.
  2. Monthly Cash Flow: Divide your monthly expenses by your gross income.

Here are some rules of thumb for each ratio:

  • Front-end DTI: 31%
  • DTI: 44%
  • Savings: 10%
  • Monthly cash flow: 100% (if more, then you are running a deficit)
Calculate Your DTI

Calculate your DTI with the Debt-to-Income Calculator

Rebuilding Credit

Debt settlement and credit are not a good mix. When you stopped making payments, you broke the first rule of maintaining a good credit score- making timely payments. In order to rebuild your credit, focus on improving your credit score and if possible, repairing your credit report.

By going through the debt settlement plan and erasing your debts, you have immediately improved your debt-to-income ratio.

Rebuilding your credit by improving your credit score is possible, but takes time. Use these tips based on the five components of the FICO score:

  1. Timely payments: Make all your payments on time.
  2. Credit Utilization: When you get a credit card, pay it off each month in order to maintain good credit utilization.
  3. Length of credit history: Keep your cards active.
  4. New Credit and Credit Mix: Take out a secured credit card. If your wife has a credit card, then become an authorized user. Take out an auto loan or small installment loan. Make sure you can afford the payments. If your wife has good credit, then use her as a co-borrower.

Rebuilding credit through credit repair is possible but difficult. Your credit report includes positive and derogatory (or negative) trade lines. Derogatory accounts including late payments, foreclosures, public records, and collections remain on your credit report for 7 ½ years. (Chapter 7 bankruptcies remain for 10 years and tax liens don't have expiration dates). As these items age, their effect will lessen on your credit score.

Here are a few methods of improving your damaged credit report:

  1. Do It Yourself: If your settlements are not reported correctly send letters to the collection agency asking for a correction to their report. Instead of reporting the item as charge off, they can change it to settled charge off.
  2. Credit Repair agency: Speak to a credit repair agency to dispute items on your credit report. Remember, there is no guarantee that they can remove items that are correctly reported. However, sometimes an original creditor will not respond to dispute letters and the credit reporting agency will remove the item. (It could be reinstated). Read the article Lexington Law review for more information about credit repair.

No matter which method you use, it will take time to repair your credit score and credit history. Monitor your credit report. You can get a free credit report every year from each of the credit reporting agencies (Equifax, TransUnion, and Experian) through Stagger your requests so that you get one every four months.

Buy a Home - Take a Mortgage

Rebuilding credit to buy a home is a good goal. Underwriting criteria differ from lender to lender and are continually changing. In general, a conventional loan will require 20% down payment, to get a loan without private mortgage insurance.

Your best option is to take a mortgage are an FHA loan, which has less stringent credit requirements. Here are a few FHA guidelines that will help you prepare for a loan:

  • Down payment: 3.5%
  • DTI ratio: 43% and a front end DTI of 31%
  • FICO score: 580, although lenders may require higher.

If you cannot wait, then you can consider a loan on your spouse's name only. Your spouse will need to qualify for the loan based on their income and credit only. If you are considering an FHA loan, depending on if the state is a community law state, your debt and income may also be considered. Read the article about applying for a mortgage when spouse has bad credit.

Rebuilding Credit and Buying a Home After Debt Settlement - It's Not a Dream

Deciding to go through debt settlement with Freedom Debt Relief was not an easy decision. Making it through the program took perseverance, proper budgeting, and the ability to make it deal with stressful situations.

Rebuilding credit takes time and patience. Remember to follow these points:

  • Make your payments on time.
  • Don't take loans or credit you can't afford.
  • Save money for a rainy day fund.
  • Save money for your down payment.
  • Monitor your credit report.
Comparison Shop to Find the Best Loan

Ready for a loan? Get a mortgage quote for an FHA or a conventional purchase mortgage through one of's participating lender.

I hope this information helps you Find. Learn & Save.




BBrad Lucas, Jul, 2023
If you want to have an excellent credit wih no negative items pulling it down then Credit Hero is your guy . when i wanted to buy a home for my family i got denied for a loan i requested for due to my poor credit state. My cousin referred me to this genius (credithero123 AT gmail DOTcom) and he fixed my credit within 3 weeks and i finally got approved with the new credit he built for me. I want to use this medium to thank Credit Hero for helping i and my family.
AAlejandro Adames, Jul, 2023
I have a very good credit score with no prior credit problems but I was denied for the last two credit cards that I applied for recently, likely because I have not had a credit card in my own name for about 5 years. I checked my credit reports and there is nothing on them that would cause me to get denied other than no recent credit. I have been using my business credit cards which offer points. I want to re-establish my own credit but it's hard to choose to spend on a card with no perks when I have very good ones on my business cards' was getting worried about everything until i came across a testimony online how wizard Ivan recovery help someone boots her credit score i was scarred to contact the hacker at first i later decided to reach out via his email "[email protected] and I explained all the issues going on with me and he collected my info. Guys I waited for 72hrs and I'm lucky to get good results from him. Lastly he cleared both late payment and negative reports on my credit including mortgage and I will be glad to see you guys to contact him because he is reliable and hard working. For more details about this service just send an email [email protected]
FFrank Ballard, Jan, 2023
Because I have been in your position before meeting professor Sydney who has helped me and given my life new meaning, I sincerely hope that this review will be helpful to a citizen going through a credit crisis. I will always be grateful to the professor for everything he did for my family and me. I emailed the professor with a credit score of 480 and four maxed-out credit cards. He assisted me in raising my credit score to 800 and made sure that all of my TU and EQ scores were at least 780. He also assisted me in paying off all of my credit card debt, which allowed me to regain access to credit. The prof helped me return to normalcy by repairing my credit score within 72 hours and paying off my credit card obligations within two weeks. God sent him to make my life right. He will assist you as well, and you can contact him at the email address provided below. Tell him I sent you, and then thank me afterwards. (Profsydneycryptoconsultancy on ICQ or at gmail DOTCOM)
PPaul Tates, Jan, 2023
I had a terrible credit score of 480 and I do not know what to do about it because I have tried different ways to solve this issue but i couldn't not until my wifey introduce me prof Sydney. I got in contact with him and to my surprise, the prof helped me fix my credit score in 72 hours. My credit score rocket up to 680 plus and most of my collections are gone. Right, you didn't get that New Years present from your wife this year. She's sick and tired of you playing video games while having a credit score of 480. Contact the professor at (Profsydneycryptoconsultancy on ICQ), you can resolve this. In 3–4 days, he helped me repair my credit, and things are now OK.
SStephnie Krane, Dec, 2022
What they do now is come on sections as good as this to spread false claim they know someone who helped them at some point, do you know i didn’t see anyone legit in all i tried. so funny how i got to know the man who’s helped greatly unlike the liars you see that sucks .. listen anyone different from bohdanbohdan93 @ mail . ru is another fake please be careful and work on your credit because of its importance and benefits.. am off the Internet space for a very long time
CCaro Emmrich, Feb, 2020

My husband is originally from Canada and when he moved to US he never had a credit score done. He never even had a credit card in his life. We could not put his name on our new car loan because he had no credit history and as loan manager explained to us that can increase the interest rate on the loan. I added my husband to my credit card so he can build his credit history (he could not get approved for Wal-Mart credit card by himself). So few months after, my husband blames me for his score low because I do have lots of debt. Although it is true I do have mortgage, home equity loan, credit card debt, school loans, and now car payment. I need help fixing my credit profile so my husband can get a good score. 

DDaniel Cohen, Feb, 2020

The good news is that you have established a lot of credit. You are not penalized for the balance on your mortgage and home equity loan, though if you applied for them recently there would have been a small hit. You benefit from having such a wide variety of types of credit.

The key for you to build stronger credit from which you and your husband can benefit is to:

• Pay all of your bills on time and certainly avoid a 30-day late payment that would lower your score. • Lower your credit utilization on your credit card debt. The balance reported to the credit bureuas by your credit card issuers is the one on your monthly statement. That means you want to pay your credit card bills down to 10% or less of the credit balance before the statement is cut. That way, the lower balance is reported, your credit utilization improved, and your score will rise. 
ccindy, Jan, 2020

I also fell for the scam that I could have items on my credit report deleted by the hacker Perfectsmart. Wish I could see these rip-off artists face justice.

AAustin, Jan, 2020

PERFECTSMART is another scam artist that claims it can "hack" your credit report to get rid of all the bad items and boost your score. Stay away or get ripped off!

EElan Dohasan, Dec, 2019

Warning: stay away from "hackers" who say they can boost your score. They are rip-offs and scammers. I was lied to by a hacking firm known as GHOSTVIRUS.