One of our readers, Dave, had this question for us:

If I take settlement with a credit card co. and they give me an r5 rating or “settled” rating how long will it take me to get good credit again and how long will it stay on the credit report. Can you negotiate the rating as well and if so what would be better.

Thanks for your question Dave!

How much of an impact that “R5″ rating will have on your credit score is going to depend on several factors:

1) How many other, positive, credit accounts you have open
2) Whether or not you have been late on any other payments
3) The average age of your accounts

That is just to name a few of the factors involved in computing your credit score. Given the complex nature of the way that credit scores are calculated, it’s nearly impossible for me to tell you exactly how much of an impact this one settlement is going to have on your credit scores. What I can do however, is help you to minimize the damage!

One thing is very certain: the fact that you have settled the account is going to look far better than an unsettled, or charged off account.

You have several options when it comes to an “R5″ rating, some of them may work for you, and they may not, but all of them are worth trying.

1. You can negotiate with your creditor to improve the way this account appears on your credit report. Usually this is done prior to actually making the settlement, but it never hurts to give them a call and ask if they can upgrade the rating. Ideally, you want it to be an “R1″ rating, or, paid in full/paid on time. Some companies will be willing to do this for you as part of your settlement agreement, and some will not – it just depends on who you are dealing with.
2. You can challenge the item on your credit report, and possibly get it removed, or upgraded to a different rating that way - If you do this, I would wait a while. I say this because when you challenge an item, the credit bureaus go back to the company you owed the money to, and ask them to go through their records and verify the debt. If the company does not verify the accuracy of your debt within thirty days, then by law it must be removed from your credit report. So, if you wait a year or even two before you challenge the bad information, it makes it less likely that the collection company will take the time to verify everything, and more likely that it will come off your credit report.
3. You can just leave it alone and focus on building better credit - One R5 rating isn’t the end of the world. Your credit scores give more importance to what is happening right now than they do to what has happened in your past. So, your scores will likely take a temporary hit right now because of the late payments and settlement agreement. But,if you make your payments on time from now on, and keep the balances on your credit cards low, you will see your score recover.

Make sure that you do check your credit scores (to see where you are starting). More importantly though, check all three of your credit reports. It is very important that this account be listed as closed, and not still open / past due (even with an R5 rating on there). Make sure the account is actually listed as closed with all three bureaus. If it can be listed as “closed by consumer” so much the better, but “closed” is the important part.

For more information that could help you out, you can check out these three articles:

• How to Challenge an Item on Your Credit Report - There is a short, free guide that you can download at the end of the article. It’s a step-by=step guide with a sample letter that you can print out and use when you challenge the bad information on your credit report.
• The FICO score breakdown - This will give you a little more insight into how your credit score is calculated.
• How to Raise Your Credit Score In 7 Easy Steps - This will give you some easy ways to bring your credit score back up now that you have worked out this settlement.

Thanks again for your question!

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This entry was posted on Thursday, October 30th, 2008 at 12:56 and is filed under Credit Score Repair FAQ, Debt Reduction FAQ, Reader's FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.