Every day, there are people in this country who struggle with their personal financial situation. As our current economy drags on, more and more families find themselves missing payments or filing for bankruptcy. If you are among those people who have made missteps and are looking for ways to repair a credit score that may have once been very respectable, there are seven important steps you can take to clean up your credit history.
Most important, you need to take stock of how much money you have coming in versus how much you have going out. Chart your income and expenses, and take a hard look at the numbers. Construct a budget, and stick to it. Look for ways to cut expenses or increase the amount of money you are bringing in. Decide where you want to get to financially, and then adjust your priorities to match your goals.
Once you have a good grip on your current situation, it is time to start looking at your credit report. By law, you are allowed one free copy of your credit report every year. Once you have obtained your report, assess your credit history. Are there any errors or incorrect information on the report? If so, make sure to get them corrected before moving forward. Incorrect negative information can greatly impact your credit score, making it hard to do things like refinance your mortgage and negotiate with creditors. Before making any long-term credit decisions, make sure you know where you stand.
Make sure you contact your creditors right away if you are afraid you may be in danger of falling behind. If you have missed some payments, do not ignore the phone calls, reach out to creditors and explain your situation. They may be able to set up a more affordable payment plan. No matter how far behind you may be, acting in good faith may give you some time to get back on your feet before they start taking action to collect on your account.
You may notice on your credit report that your creditors have recorded your payment history. Make sure that you are submitting your payments on time not just for any credit cards you may have, but any extended credit. If necessary, keep copies of cancelled checks or receipts as proof that you have been paying on time.
Especially in these uncertain times, stay at your current job unless a position change will mean greater financial leverage for you. Employment status is an important indicator that you are able to pay your bills, and creditors feel much more secure about people who have been at their job for at least a year. Maintaining employment for at least that amount of time will give your creditors more assurance that you will be able to make good on your debts.
Once you begin to get your financial house in order, be careful to make good credit decisions moving forward. If you have been able to pay off a few of your credit cards, don’t jump right back on the bandwagon right away. Give yourself several months to prove to yourself and any potential creditors that you can manage your money correctly.
Above all else, beware of quick-fix schemes that promise you they can remove any and all negative information from your credit history. There are no magic tricks to repairing a damaged credit score outside of strict fiscal responsibility and adherence to the budget you have made for yourself. Any incorrect information on a credit report can be fixed yourself with a little effort. Many times, companies prey on those who have been frivolous with their finances and charge an exorbitant amount for their services. If you do decide to employ a third party to help you negotiate with creditors, make sure you know your rights, and read any contracts thoroughly before you sign.
Credit score recovery can be a long hard road, but the sooner you start the quicker you will see results. Adherence to your goals and your budget will pay off in the long run, and get you further down the road to financial independence.