A rite of passage into adulthood might include your first automobile purchase, a first home, or even your first credit card. While many people are quick to tell you about how to keep your credit in good financial standing, few people share the bad news about how to fix it when it dips into troubled areas. There are many reasons why your credit might fall into ruins, and no one is laying blame or casting judgement. Lost jobs, medical conditions, and a host of life events can get in the way of keeping your finances on track.
If you think you’ve gotten into some credit trouble lately, maybe because you missed a payment or two on your credit card or your auto loan payment was late, don’t abandon hope. The first thing to do is check your free credit score. This will help you identify what your score actually is, and it will highlight the areas that need attention in order to raise it back into a higher reporting category. A good score is considered anything higher than a 700, so start your analysis by aiming for that number. However, if you have dipped into a poor and very poor credit rating, you have some work to do. Don’t give up. There is still life after a bad credit score.
Ditch the Debt
Many people find that their expenses exceed their income. If this is your situation, you need to find way to create an opposite standard of living. There are several ways to help improve your credit score, and if things are really bad, it might take some discipline and some hard decisions. Debt can be a crushing blow to your credit, and unless you have a solid plan in place for paying it off, your credit score will continue to suffer. For those with few options to increase their income or negotiate with credit companies, choices might include filing bankruptcy, debt reduction, and debt consolidation. These can impact your credit score, but also provide room for it to bounce back.
Most people pursue filing bankruptcy as a last resort for their financial troubles. This is because of the long-term impact it will have on your credit score. Depending on what type of bankruptcy you file, you could be looking at 10 years of reporting effects. However, even before the filing falls off the report, you might see your credit score begin to climb back up.
Debt Reduction Plan
With a reduction plan, you negotiate the payoff for certain credit accounts. This works well if you have fallen far behind on payments, as your lender may be happy just to recoup some of their investment. However, this will also stay on your credit, as it gets reported as a settlement. How it impacts your score will vary according the situation, but settling one credit card can reduce your score in some cases by up to 60 points.
Debt Management Plan
Different from reduction, this is a consolidation approach to your debt. You work with a company to organize your debt. Rather than making many payments each month, you are given one lump sum payment and the company disperse the money to account holders. These plans are usually factored according to your income and the amount of debt held. This doesn’t impact your score as much as the other options. However, as the limits on your revolving accounts start open, there is the danger of getting back further into debt.
Take Baby Steps Toward Repair
There are some small steps that can be taken toward repair if you aren’t comfortable making such a huge decision with your credit. Some of these include:
- Dispute negative marks on your credit report.
- Dispute errors in payment postings and late reporting.
- Contact credit card or lenders directly to change reported information.
- Ask for an increase on your credit limits.
Get Serious About Your Lifestyle
The best options for credit repair take extra attention to the problems of the accounts themselves. First and foremost, you will need to curb your spending. Talk to a financial counselor and get your household on a budget. If you are really focused on long-term financial freedom, it will come down to good saving and spending habits. It is not always easy to make more money, but it is always possible to save money. Check out a coupon class at a local library, and make a conscientious effort to buy used before new if you need something big. Thrift stores, consignment sales, resale shops, and even eBay can be huge cost-saving options for your budget.
Don’t Give Up
Financial hard times can happen to anyone. Don’t get depressed or give up on your credit score. By changing your habits and taking small steps toward repair, you can move past this slump. Slow and steady can win the race to financial freedom.