Fixing a Bad Credit Score

How to Repair Your Credit

You've ran into some hard times, and your credit has taken a big hit. Maybe you have missed some credit card payments. Or perhaps you have had to declare bankruptcy.

While your credit score is impacted by several factors, the component that carries the most weight in determining your credit score is your previous credit performance. Late payments can really hit your score hard, as can bankruptcies and collections. In fact, a collection will stay on your credit report for seven years after you've paid off the outstanding debt.

If your credit score has taken a dive recently, you don't need to lose all hope. There are steps you can take to help repair your tarnished credit.

Make loan and credit card payments on time. This step is vital in repairing your damaged credit. Missing a due date can cause your credit performance to suffer, which in turn impacts your credit score heavily. Make sure to do everything you can to remember all of your payment due dates - even investing in a wall calendar can help you keep track of your monthly financial deadlines. Additionally, create a monthly budget in order to ensure that you have enough funds each month to cover your minimum payments.

Avoid closing unused credit cards. Many people might believe that reducing the number of credit cards they have will help increase their credit score. However, such a move actually can have the opposite effect. By closing you unused credit cards, you are lowering the total credit available to you, which will make any outstanding balances appear that much larger in credit score calculations. Additionally, you might end up closing your oldest accounts, which in turn will shorten the length of your credit history according to your credit report.

Work to pay off any "revolving" debt. All debt can feel like a burden, but some types of debt are worse than others. "Revolving" debt, most often seen in the form of credit card debt, can be viewed as more detrimental than other debts, such as a mortgage or a school loan.

When paying your monthly bills, you should be aware that while paying the minimum payment on a credit card will keep you out of the collections office, it most likely will not pay off the debt any time soon. A credit card's interest rate will tack on additional debt every month and in essence reverse a chunk of the payment you just made. Additionally, the higher the credit card balance, the more interest is accrued. For this reason, you should aim to pay as much as you can toward your credit card balances, starting with those cards with the highest interest rates.

Avoid applying for new credit. Each time you apply for new credit via a credit card or other type of loan, your credit report takes a "hit." Too many hits and your credit score goes down. If you're already overloaded with debt, chances are the last thing you need is another debt. Additionally, if your credit is poor, any interest rate you obtain is likely to be high and not worth the ding on your credit. Your best bet is to buckle down and focus on paying off your existing debt.

If you are having trouble, don't hesitate to contact the creditor. Many times a lender, including credit card companies, will be open to working out special arrangements to help you pay off your debt. They want you to pay off the debt as much as you do - if you default on your loan, they do not get their money. Additionally, lenders are likely to be much more understanding if you approach them before late payments, or missed payments, become a problem.