Fixing Bad Credit

Where you start depends on what your current debt situation is.  If you're struggling right now to pay your debt obligations, there are five immediate steps you will need to take:

1. Face up to the problem.  Admit that you are in over your head, that you can't pay your debts, and that you need help.
2. Stop purchasing with credit.  Continuing to rack up more debt, even as you default on other debts, will make your situation worse.  If you use credit cards, put them in a place where you can't get them or cut them up.  Don't close the accounts, but do stop spending on them.
3. Seek help from a trustworthy, unbiased source.  You may eventually choose to hire a debt consultant or credit counselor, but first seek help from someone who's not in it for financial gain (such as the Federal Trade Commission, the National Foundation for Consumer Credit, or the Federal Reserve Board.
4. Negotiate.  Call your creditors, or seek help from a credit counseling agency that will negotiate with your creditors for you.
5. Consider debt consolidation.  Debt consolidation can be an effective way to reduce your current monthly payments without defaulting on your obligations.

If you decide that you need help negotiating with your creditors or consolidating your debt, check out this government website that will point you toward approved credit counselors.

If you're not stuck in the month-to-month debt trap, but would like to improve your score, follow these three steps:

1. Be patient.  Over the process of time, if you always pay your debts punctually, your credit score will rise — even if you don't take any other steps to improve it.
2. Pay off (or pay down) your debt balances.  If you have the extra cash — whether from equity in your home or your annual bonus, use that money to pay down your highest-interest debt balances.  The less debt you have, the better your score will be.
3. Use credit wisely.  If you can manage it, use credit to pay for regular monthly purchases, like groceries and gas, and then pay off your credit card every month.  That way, you can build a positive credit history.

Fixing Bad Credit