10 Steps to Credit Card Recovery
Step 1: Admit the Problem
As with any other problem or addiction, the first step towards curing credit card debt problems is simply admitting that they exists. Even if your debt is the result of a situation beyond your control, such as an illness, job loss, divorce, or other crisis, you still need to admit that you are in trouble before you can begin to fix the problem.
Step 2: Ask For Help
If your damaged credit is a result of compulsive shopping or other emotional or psychological issues, you may need to seek professional help. Professional counseling can not only help you to take control of your credit, but of your entire life. Even if the cause of your credit crisis is something beyond your control, counseling may be helpful. It is often most difficult to recover from those problems that we feel no control over.
Non-profit organizations can also help you gain control of your finances and your life. Their credit counselors will work with you, educating you about consumer credit, money and debt management, and budgeting. These counselors can teach you financial management. Such companies usually provide you with these services without charge and offer free educational materials and workshops.
Step 3: Be Patient
Whatever the reason for your bad credit, or how serious it is, only time and patience can allow you to re-establish good credit. At best, with a slightly damaged credit history, such as a few late payments, you may be able to catch up and improve your credit in a few months. On the other hand, if there are issues such as judgments, bankruptcies, or foreclosures, these are likely to remain in your credit file for seven to ten years. In spite of this, you can begin to improve your credit history and see your credit scores rise within a few years.
Step 4: Take Charge
Regardless of what has led you to your current situation, the first step to fixing it is taking responsibility for your actions. You may not be able to change or undo what you have done in the past, but you can decide to take control of your current and future finances.
Step 5: Review Your Record
You need to obtain and scrutinize your credit report from each of the three national credit bureaus: Experian, Equifax and TransUnion. First, determine if the information is correct. Any information that is in error should be immediately reported to the national bureau. Next, make certain that the negative information that is correct is completely accurate. Check that any debts that have since been paid off or paid down are noted in your report to accurately reflect the current situation. Also, find out if any information that is accurate is outdated and legally should not appear on the report.
Step 6: Explain Your Errors
You should add a 100-word written explanation for any problem accounts listed in your report. Send this to the credit bureau(s). Anyone asking for your credit report will then also get a copy of your explanation.
Step 7: Establish New Habits
You must create a new pattern of always paying on time and meeting all financial obligations. Over time, your more recent record will begin to make up for the mistakes of the past. This will only happen, however, if you follow your plan, cut back on your spending, and are consistent.
Step 8: Pay Off Debt
Begin paying off your current debt. Unpaid debts are among the most damaging components on your credit report, so this is important to rebuilding your credit. Lenders and collection agencies will work with you to set up a practical payment plan. Decide on a realistic payment schedule that allows you to begin repaying debt while continuing to make all new and current payments on time. You need to show that you are serious and can now be trusted.
Step 9: Establish New Credit
Eventually, once your current debt is under control, you will want to open new accounts to help you rebuild your credit. Apply for a credit card or even small loan from your bank, credit union or local department store. Be honest about your credit history, but show them that you are serious about improving your credit record. Another option is to apply for a secured credit card, use it on a regular basis, and pay in full monthly. As a last resort, ask a relative or friend with good credit to co-sign for a credit card or small loan, but remember that you then put their credit on the line along with yours.
Step 10: Keep Track of Your Credit
Recheck your credit report between a year and 18 months after establishing new accounts. Monitor all information so that it is correct and up to date. From now on, keep a watch on your credit as it slowly but steadily begins to rise.