How Do I Recover from a Bad Credit History and Improve My Credit Score?
Repairing and recovering from a bad credit history is challenging. Despite all of the advertisements and guarantees broadcasted by credit repair companies, there is no “quick and easy” method for repairing your credit and improving your credit score.
In fact, before we delve any further into this topic, you should be aware that any companies that promise quick fixes are companies that are either attempting to scam you or will place you in a more dire situation than you are already in.
You must simply manage the issues on your credit report in a responsible manner and commit to taking the steps necessary to repair, recover, and improve your credit. Continue reading to learn the best steps for this process.
Step 1: Determine If There are Errors on Your Credit Report
The first step to recovering from a less-than-favorable credit history and repairing your credit to improve your credit score is to carefully evaluate your credit report to determine if there any errors. According to the Consumer Financial Protection Bureau, the most common complaint that they receive is incorrect information on credit reports.
If errors are found, immediately make a report to the organization listed on your credit report, as well as the credit bureau. An investigation will be conducted – based on the information that you submit and that which they find – so be as detailed as possible. If ruled in your favor, the item(s) in question will be removed from your credit report.
Step #2: Consider a Debt Management Program
If you have many accounts present on your credit report, you may find that it is virtually impossible to reach an agreement with each on payments that are possible with your budget.
For example, if there are 10 outstanding accounts on your credit report, you may be able to agree to $10 a month for each with the income that you have; however, each may want a minimum payment of $50 a month. Most people cannot afford to pay out $500 a month on credit. This is where a debt management program will come into play.
They take what you can afford (or as close to it as possible), then they negotiate with the creditors to work out a plan that helps you pay off your debt. Yes, they charge a fee for their services, but it is usually not too much at all.
In the end, it is well worth it.
If you are looking for a stress-free way to recover from a bad credit history and improve your credit score, you will benefit immensely from the services offered by today’s debt management programs.
Step #3: Avoid Closing Out Credit Card Accounts
If you are reading this – chances are – you are not currently using your credit cards. Most people that want to recover from a bad credit history and improve their credit score will immediately stop using any credit cards in their possession.
Unfortunately, many make the mistake of closing out their unused credit cards. You should not do this.
There is one exception, though.
If the credit card is charging you annual fees, it is best to go ahead and close it out; however, you should keep it open, otherwise.
If you close out a credit card account, it will instantly increase the credit utilization ratio on your credit report. This has the potential to lower your credit report score. Together, with your payment history, the credit utilization ratio accounts for a total of 70% of your total credit report score.
By keeping credit cards that do not charge fees open, your total credit utilization ratio will much significantly lower.
Now that you have been introduced to the top 3 strategies for recovering from a bad credit history and improving your credit score, we would like to outline additional strategies that may help you recover from poor credit successfully:
- Regardless of what bills you have, be certain to pay them on time. Payment performance is considered to be a top predictor for how you will perform on your payments in the future.
- If you have not already done it, sign up for Experian Boost. This will provide you with improvements towards your credit score if you pay your cell phone and/or your utilities on time.
- Avoid applying for credit as the hard inquiries will negatively impact your overall credit score.
Now that you have read this guide, you are well on your way to recovering from a bad credit history, repairing your credit, and improving your overall credit score. If you would like more information on boosting your financial health and livelihood, we here at Somerville Bank can help you!