Credit Restoration Tips

In a world where the cash flow typically runs out at mid morning on any given business day, credit is the lifeblood of our nation’s economic and business landscape. Individual credit scores determine the ability to buy cars and homes, and may even impact potential employment. Maintaining a reputable credit score should be a high priority, for no other reason than the security it can provide. Obviously the best way to do this is to manage your credit wisely, pay your cards off each month, and make every effort to live within your means. However, mistakes are made, mistakes that can affect credit standing for years or even decades. But even if you have made a gaffe (or three, or five), all is not lost. By taking the proper steps, you can restore your credit standing and be able to take full advantage of lower interest rates and other opportunities that a high credit score affords. Here are some credit restoration tips.

Get Your Credit Report

Obtain copies of your credit report from all three reporting agencies, Equifax, Experian, and TransUnion. You will want all three because information may be slightly different from report to report. This will provide a comprehensive overall picture of your credit situation. Determine and prioritize what needs to be repaired, disputed, paid off, etc.  See How To File A Credit Dispute if you detect any inaccuracies.

Pay Off Past Due Accounts

Pay these off first. You do not want outstanding accounts to be charged off or sent to collection agencies. If you do have a charge off, try to pay it off anyway provided your creditor will agree to erase bad marks on your credit report. Work with debt collectors to set up a manageable payment method for overdue accounts.

Maxed Out Accounts

Don’t worry about paying these completely off immediately, but do get them comfortably down below the limit.  Then concentrate on paying off your highest-interest debt first (there is also the debt snowball approach, which has you paying off your lowest-balance debt first.  There may be some psychological advantages to this for some people).

Consider Consumer Credit Counseling

There are pros and cons to programs like this. In many cases, you can do yourself what these companies will ask you to pay for them to do. If your creditors are willing to work with you, do so. If not, a call to Consumer Credit Counseling might be in order.  Many experts will advise you not to engage a credit repair specialist, but I believe it’s well worth a reasonable fee even though you can probably do just as well on your own if you don’t mind taking the time to do so.

Establish New Credit

If you can obtain new credit, use that to establish a new, good credit history. Keep it down to one or two accounts, to keep your credit inquiries low.  Responsibly handling both a revolving credit line (like a credit card) and installment credit line (such as car loan or mortgage) are ideal for building a positive credit history, but don’t overdo it.

A bad credit score is not forever. Taking careful and measured steps can result in restored standing and a new world of opportunity.