With an economy that seems to improve one day and change its mind the next, people have found it extremely difficult to make ends meet, stemming from a series of setbacks due to unemployment, rising living costs, inaccessibility to affordable health care, and more. These situations often lead them down the path to bad credit.
As a financial advisor who has coached banking clients on sound financial practices to keep them out of debt and has advised those with bad credit, I can say that having bad credit is not the absolute end. There are several steps anyone can take to help repair their credit rating and get them back on track financially, but require some discipline and planning.
1. Fix Your Credit Report
The very first thing to do is order a credit report, analyze it, and fix any errors in it. Dispute anything that has been erroneously reported to remove negative points from your score. Approximately 70 percent of credit reports have mistakes. Why be penalized for an error someone else has made?
Credit reports can be ordered without charge every 12 months by visiting AnnualCreditReport.com or calling 877-322-8228. Other services that can help fix your credit rating include creditrepairaid.org.
2. Catch Up on Missed Payments
Review all credit lines you currently have open that are expecting payments. Call each creditor and devise a plan to make affordable payments continually, so you show creditors you are working towards paying back your debt.
Several non-profit credit counseling agencies are also available to help you negotiate with creditors and make payback arrangements that you can manage.
3. Going Forward Make On-time Payments to Debts
Assess your monthly budget and make strong efforts to pay bills on time. Payment history plays a major role in calculating your credit score, so fixing this issue going forward helps bring your score back up.
If you have negotiated lower payments on credit card debt, mortgage payments, and loans, siphon that money towards regular monthly bills such as utilities and rent. Showing a solid effort to make payments shows you are serious about fixing your credit which may even buy you letters of recommendation for future credit applications.
4. Pay Down Credit Card Debt
If you have balances on several cards, try consolidating some of those cards onto a fewer number of cards with better interest rates. However, be careful not to close cards you have had for a long time. Those cards exhibit an established credit history, and you do not want to destroy it. Balancing the credit you owe against the credit available on long-standing cards shows you’re serious about making payments. This will increase your score.
5. Avoid New Credi
Inquiries for new credit now will only hurt your score. If you need a loan, consider borrowing from friends and family first. If that is not an option, then search for a single line of credit, rather than multiple ones. Several applications for credit will each be a negative on your credit history and bring down your score.