Help! My Credit is Dismal. What Can I Do?

A lot of credit advice is written to help people whose credit is somewhere between the “good” and “not-so-good” range. But what about if your credit has been completely damaged? It’s easy for it to happen, especially after a divorce, bankruptcy, job loss or some other stressful event.

At rock bottom, things can feel bleak. It can feel like there’s no hope. But the good news is, many people have gone through the same thing and survived — and even thrived — as they rebuilt their credit.

Tip #1: Fix the errors. Before you do anything else, get your credit report and go through it with a highlighter, checking to see what information is there and especially checking for errors. Errors can be very frequent in credit reports and it’s hard to rebuild your credit when you have errors counting against you. Start there. Dispute the errors and make sure that your credit report is truly a picture of you!

Tip #2: Lower credit card balances. You might have some credit card accounts with high balances. If you start to pay those balances down, it can boost your score. One of the keys to raising your credit score is minimizing your credit utilization (balance/limit ratio on cards), which tends to be optimal when below 20 percent. If you’re not able to get your balances down to 20 percent, work on paying them down as best you can, and you’re likely to see steady improvement as you do.

Tip #3: End late payments. Late payments can really hurt your credit score so do all you can to avoid late payments. If you can’t pay the balance in full, pay at least the minimum amount so that it will not count as late on your credit report. While you might still have some late payments haunting your credit report in the past, commit to no late payments moving forward, and over time it will have a positive impact on your credit score.

Tip #4: Use a secured credit card. If your credit score was lowered, it can be hard to get another loan, yet proving that you can repay loans is exactly what lenders want to see. Rebuild your credit history positively by getting a secured credit card (which is a credit card that requires you to deposit some money first as security). The credit card will show up as a regular credit card (not as a secured credit card) on your credit score and you’ll rebuild your credit history with positive, on-time credit card usage.

When your credit score hits rock bottom, it can feel like many of your dreams and goals in life need to be put on hold, and it can be hard to see any light at the end of the tunnel.

Fortunately, all is not lost and many people come back from bad credit to achieve rebuilt credit and a rebuilt life. You can, too!

Image: Rachel Johnson, via Flickr