Restoring your credit takes planning, discipline and time, but you may certainly build a better credit history and raise your credit score by eliminating some bad habits and adopting some good ones. Your credit score is critical to your financial health because lenders rely on it to decide whether to issue you new loans and at what rate.
Assess Your Situation
One of the first things you need to do to restore your credit is figure out where you stand. You can often get a free copy of your credit report through various online providers. Look over your score to figure out what specific items are mentioned that have negatively affected your score. Late payments, collections, frequent inquiries and high balances are common reasons your credit history might be viewed unfavorably.
Improve Your Discipline
Ideally, your poor credit score is the result of some basic, irresponsible credit use that is easily reversible. For example, if you have high debt-to-limit ratios on a few credit cards, or a few late payments, you may improve your credit score by refraining from the use of credit cards for unnecessary spending and by paying down your cards quickly. As you pay down your card balances, you reduce your debt-to-limit ratio, which impacts 30 percent of your FICO score. You also improve your payment history, which affects 35 percent of your score. You must make late payments a thing of the past.
Your credit score may actually be affected by errors or lingering issues that should have been removed. Old judgments or liens and debts you paid that were inadvertently noted on your report as collections items are among those things you must have removed from your report. You may find these items when you access your free credit report from any of the major reporting bureaus -- Equifax, Experian or TransUnion.
If you are in a very tough situation and are unlikely to make upcoming payments, consider calling your creditors to negotiate. Some credit card providers may consider lowering your monthly payments, reducing your interest rate or even forgiving some of your debt if they feel the alternative is you not paying any of the debt or declaring bankruptcy. You may be able to find a free credit counseling service to help with this process if you do not feel comfortable calling yourself.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.