Cleaning Up Your Credit will Open Doors

Weathering an economic downturn or a personal crisis can take a toll on anyone’s credit. Maybe you lost your job or got divorced and had to live off credit cards for awhile. Maybe your financial situation became so difficult that you had to file for bankruptcy.

Whatever your circumstances, it’s important to know that your credit status is never permanent. It fluctuates depending on the amount and type of debt you have, your payment history, and other important factors — all of which can be improved with a little patience and know-how.

Let’s discuss how to clean up your credit and create new opportunities for yourself.

Where should you start?

Many people who find themselves with poor credit don’t know what to do about it. Ballooning debt can feel insurmountable and being denied the loans you need can be frustrating.

If you have too much credit card debt, here’s what you can do:

• Try negotiating your interest rate. Often time you can get a lower rate just by asking. This is particularly true if you have a long history of timely payments with a credit card company.
• Come up with a payment plan. Decide how much you can afford to pay each month to start reducing your debt. You may need to make difficult lifestyle changes, but in the end it will be well worth it.
• Pay with your savings account. It’s better to pay down your credit card debt by dipping into your savings than to keep paying exorbitant credit card rates each month. This will save you money in the long run.
• Pay more than the minimum. If you can, increase the amount of your payments. This will help you pay down your debt faster. Also, make it a priority to pay off the cards with the highest interest rates first.

Next Steps

Once you’ve reduced your debt, keep your credit utilization ratio low moving forward. A low utilization ratio — 30 percent or less of your available credit — will help raise your credit score. You can also move money between accounts to avoid approaching the credit limit on any one account.

If you’ve filed for bankruptcy:

• Make sure the bankruptcy shows up on your credit report. Otherwise, your report could show delinquent account balances instead, which will further damage your credit score.
• Address any errors. Partner with a reputable credit repair service to help you dispute, fix and remove errors on your credit report that aren’t part of your bankruptcy.
• Pay your other bills and debts on time. The goal is to show a positive payment history, which will improve your credit score.
• Get a secured credit card. While it may seem counterintuitive to apply for new credit during a bankruptcy, a secured card is relatively easy to get and helps you re-establish your credit. Make only small purchases with the card and pay them off every month.

Sometimes it can take a year or more after bankruptcy to begin to see significant improvement in your credit score. But you should see incremental improvements if you’re diligent about sticking to your plan.

If you have a low credit score in general

In addition to making all payments on time, consider speaking to a credit repair service that has the expertise to offer you the guidance you need and educate you on good credit practices. Also consider reaching out to lenders to find out if they can work with you to obtain a more favorable repayment arrangement.

Anything you can do to show your intention to improve your credit is important and will have a positive impact.

What can you achieve with better credit?

Good credit is foundational to quality of life. After a hardship or a series of mistakes, reducing debt and re-establishing good credit can help you:

• Qualify for lower interest rates on loans and other consumer credit
• Buy a home or upgrade your current home
• Buy a new car
• Go after a job promotion or further your education
• Afford the extras that are important to you (travel, retirement savings, etc.)

Don’t underestimate the value of cleaning up your credit. If unresolved errors on your credit report are making a difficult situation worse, look into professional credit repair services to help fix the inaccuracies and improve your credit score.

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