Maintaining a strong credit history is something everyone needs to do. But understanding what may help build credit – and what could hurt it – is a bit less universal. What can make it even harder is a situation like a job loss or a medical emergency, which may cause you to fall behind on your bills and, as a result, damage your credit health. It can happen to the best of us, but the good news is that you and your credit can recover. These credit strengthening tips may help, whether you're striving to get back on course or just want to keep a good track record going.
If you go to the ER, the first thing they do is assess your condition, starting with the affliction of highest urgency. Tackle debt that's creating problems with your credit health in the same way, suggests Kathleen Grace, CFP, CIMA. "The first thing you ask yourself is, 'What's the biggest, most problematic debt? What are some ways to pay if off?'" she says. Treating your situation as an emergency where time is of the essence can combat procrastination and denial. Brainstorm your options, like reducing specific expenses to find cash to apply to the debt. You may want to try budgeting software or online financial tools offered by your bank to itemize your expenses and determine where you can cut back to pay off the debt.
2. Talk yourself down.
Beverly D. Flaxington, author of Make Your Shift: The Five Most Powerful Moves You Can Make to Get Where You Want to Go, champions the power of self-talk to move you past despair and inertia when you're behind the eight ball. "The reason most of us get so thrown off our game is it feels so big and overwhelming," she says. To help, Flaxington suggests breaking down the problems so they seem more manageable. "Say, 'OK, the roof leaked, or I had this surgery that was only partly covered by insurance, so I got behind on my bills. I'll do whatever it takes to get my credit back on track. There will always be unexpected things, but I'm always going to keep doing my best,'" she suggests. "The more you can give yourself that kind of self-talk, the better off you'll be."
3. Understand there's no magic.
Nobody can just erase legitimate negative credit history. That said, real errors on credit reports do happen. That's one more reason to pay close attention to what's listed on yours and to contact the agency immediately with any discrepancies you find. Click here for more information on what's in your credit report and how to dispute a mistake.
4. Make a payment, any payment.
"One of the worst things you can do for your credit is to miss payments," says Larson. Even making just the minimum payment on a credit card is much better than not paying at all. Debra Buser of Philadelphia learned that the hard way. "I was struggling to get my credit back on track after a rough spell. One month, for some reason, I decided it would be better to pay a lot more than the minimum next month, when I expected to have more cash available, than pay just the minimum now. That turned out to be a big mistake," she says. Regardless of how late you may be, making a payment so you're not in default may provide some boost to your credit score. As your missed payments get older, they may count less and less against your score.
5. Consolidate with a balance transfer or loan.
"If you've just been laid off and still have good credit, and are fairly confident you can get another job within a few months, I would recommend a [credit card with a] balance transfer [offer]," says Sean McQuay, NerdWallet's credit card expert. "You need good or excellent credit to qualify, though, so you need to act quickly after a job loss." A 0% APR balance transfer credit card offer will usually give you somewhere between 6 to 21 months to pay off the balance before the rate kicks up. During that reprieve, you only need to make the minimum payment, which can be a credit-score saver. Be aware, however, that you may not be able to avoid paying interest on purchases (sometimes referred to as a "grace period on purchases") you make during the promotional period. This is true even if your balance transfer offer has a 0% promotional APR. If jobs in your field are scarce, or you don't anticipate being able to pay the debt off for several years for another reason, "It may be a good idea to consolidate your debt with a personal loan, which should be able to give you a lower APR than a high-interest credit card and may allow you several years to pay off your balances," says Larson. Click here for more information on how to determine if a balance transfer could be a smart move.
6. Get organized.
"In my years meeting with clients, many would come to the office with shoeboxes filled with paper," recalls Patrice C. Washington, Founder and CEO of Seek Wisdom Find Wealth, a personal finance training and development company. "They wouldn't know who they owed, what they owed...but that's obviously important if you want to move forward." Organizing your financial life shows you value it, says Washington, but how you do it really depends on your personal style. Whether it's with apps on your phone, software on your desktop, or old-fashioned notebooks and folders, what matters is that you take the time to get financial statements, legal documents, medical papers, receipts, income taxes, and more in order. "When people take that time, they feel like they've gotten back control," she says.
7. Time decisions right.
Cary Carbonaro, MBA, CFP, author of The Money Queen's Guide, emphasizes the importance of applying for credit, loans, mortgages, and other major finance– and credit score–impacting decisions at the right time. "So, for example, if somebody just lost a spouse or even a job, they are likely not in the right frame of mind to make a good financial decision," she explains. If you feel rushed, stressed, or distracted, you may lock yourself into obligations you can't easily meet, which can damage your credit health. "If you must make a decision at such a time, have an advocate or coach that can help you," advises Carbonaro.
8. Embrace efficiency.
It can lead to better credit health in the long run. Almost all of us have forgotten to pay a bill on time at least once (and perhaps more frequently than that). It happens. Unfortunately, there is no "busy life" forgiveness clause for your credit score. Your best defense could be a simple one, says Lewis J. Altfest, Ph.D., Associate Professor of Finance at the Lubin School of Business at Pace University in New York City. He suggests having everything you can – utilities, your mortgage, car payments, student loans – set up as automatic payments, whether on a credit card or your checking account. He also offers a second defense against forgetfulness dinging your credit score: "Arrange for a small line of credit connected to your checking account so checks don't bounce. Just be careful. If you're going to run into debt with it, you're defeating yourself. Use it infrequently at best. And you must repay it as soon as your next salary check comes in."
Washington is also a fan of text and email reminders from your bank that alert you when your balance drops to a certain point or when your direct deposit hits. "That's a great way to stay on top of your bill paying and therefore your credit rating," she says. "I've been able to immediately jump into action when my paycheck or vendor payment didn't deposit when expected."
9. Never stop learning.
"Keep learning about healthy debt management," urges Bruce McClary, Vice President of Public Relations and External Affairs for the National Foundation for Credit Counseling (NFCC). An overlooked way to keep your credit healthy, he notes, is to never assume you know everything you need to know. That's because the rules of credit, consumer rights, and bank practices keep changing. Aside from the NFCC's site (NFCC.org), the Consumer Financial Protection Bureau (CFPB.gov) is another reliable resource. Check in at least every few months to see what's new that could affect you. "The more you learn, the more responsibly you use your credit," he says. "The goal is to migrate to a place where you pay less for what you buy and the credit you use. Higher scores will enable you to do that." Do you know who can see your credit report? How about what information can't legally be shown on your credit report? Head to our infographic, All About Consumer Credit Reports, to find out more.