Out of the blue, poor credit often sneaks up on consumers and strikes them like a bolt of lightning where it hurts most- in their pocketbook. The triggers for bad credit reports are diverse, ranging from unemployment, illness, and divorce to an insolvent business and irresponsible spending. A negative credit rating adversely impacts consumers across many fronts. It raises their insurance rates and makes it more difficult for them to land a job or promotion and to obtain housing. It can even lead to a garnishment of their wages. Fortunately, poor credit is not irreversible, and numerous avenues exist for debt-stricken consumers to re-establish a good rating and reclaim their purchasing power. What follows are eleven effective methods for fixing credit:

1. Correcting errors on credit reports

To improve your credit score, consumers should 1) obtain a copy of their credit report from the three credit bureaus (Experian, Trans Union, and Equifax), 2) report any discrepancies or inaccuracies to their creditor, and 3) request that the credit reporting agencies and/or the creditor that communicated the error correct the information. If there are any outstanding debts on the report, consumers should pay them as quickly as possible, starting with those featuring the highest interest rates.

2. Setting up a payment plan

A second way to fix your credit is to contact creditors and establish a repayment plan with them. They will negotiate interest rates, balance payoffs or lower payments with borrowers. Upon repaying their debt, consumers should mail a copy of their settlement letter to the credit bureaus so that they would update their credit report.

3. Implementing a debt consolidation plan

Individuals drowning in debt should consult a credit counseling agency for purposes of working out a credit debt consolidation program. With the help of a credit counselor, consumers may consolidate their debts to lower or remove finance fees. This will improve credit score and reduce their monthly payments by as much as 40 percent.

4. Keep a few credit accounts open

Since the duration of credit history is the third most significant criterion in a borrower’s credit score, consumers should keep open one or two of their oldest accounts. Closing too many accounts at once would reflect poorly on their financial health.

5. Liquidating assets or selling valuables

6. Eliminating unnecessary purchases and utilizing the remainder of earnings to repay debt

7. Maintaining the same occupation and residence

8. Paying bills on time

Comprising more than one-third of consumers’ score, payment history ranks as the top consideration in their credit score. To fix credit score and qualify for better ratings, consumers should pay rent, mortgage, utilities, and their credit card balance in a timely manner.

9. Obtaining a co-signer on a credit card or small loan to help them rebuild credit

10. Applying for a Credit Union loan

Upon paying off their debt, consumers can apply for a credit card or a loan from their Credit Union. By making payments on the Credit Union loan from their savings account, they can rebuild a positive credit history.

11. Applying for a secured credit card

To improve credit, individuals who fail to qualify for a traditional credit card should consider applying for a secured credit card. The applicant supplies the funds up front as collateral, and his or her card appears as a credit card on the credit report. When utilized judiciously, secured credit cards can help consumers reestablish their credit.

Credit reports play a pivotal role in a credit card company’s evaluation of whether an applicant poses a positive or negative credit risk. Lenders extract from them personal data concerning prospective borrowers, as well as their income, debts and credit payment history. A credit report provides a profile of the cardholders’ financial life, and creditors access it from one or more of the three leading credit bureaus; namely Trans Union, Equifax, or Experian. Through credit debt management, consumers can maintain considerable autonomy over the criteria that creditors rely upon in approving credit applications or issuing loans.

To rate credit applicants and decide whether to grant them credit, financial institutions examine a number of different factors in the former’s credit report:

Income The length of time borrowers have resided at the current address The kinds of assets they possess The types and number of accounts The balances in their savings and checking accounts The duration of their relationship with their current employer Credit history

Lenders will look at an applicant’s outstanding debt and examine his or her debt ratio, or the percentage of his or her monthly income allocated to debt repayment. Credit reporting also discloses to lenders the amount of credit that the borrower has received, how much credit he or she has available, the borrowing frequency, and promptness in bill payment. When scrutinizing a credit applicant’s track record in debt payment, creditors will ascertain whether or not he or she has paid their bills on time and for the full amount. Lenders will read the summary rating per individual account belonging to the applicant that is included in the “Account Profile” section of his or her credit report. The summary may state either “non-rated”, “positive” or “negative”:

“Non-rated” means some late payments, which translates into a poor credit report, notwithstanding the absence of a particularly negative entry; “Positive” signifies timely payment; and “Negative” indicates significant credit issues, possible a delinquent debt.

In their assessment of applicants’ credit-worthiness, lenders also consider such events as bankruptcy, court judgments, collection actions and tax liens, which are listed on the credit report.

Inquiries

Whenever consumers submit an application for credit, an “Inquiry” appears on their credit report. Lenders may view negatively an excessive number of credit inquiries accumulating within a short duration and consequently deny credit to the applicant. What constitutes “too many inquiries” is left to the discretion of each individual creditor.

Behavioral patterns relating to credit usage

Applying for or holding a number of credit cards may adversely impact prospective credit applications, despite the fact that a consumer’s balances on the existing cards are current. Lenders will also take note of the length of time that consumers have had the present accounts and determine whether they are living within their means.

Each lender follows its own model of scoring consumer credit, awarding a specific number of points for each factor that helps forecast each borrower’s ability to timely repay a debt and his or her creditworthiness. Since credit reports may contain potentially damaging inaccuracies or errors, such as “past due” remarks, cardholders should precipitate to obtain a copy of their report and review the information. Credit score repair may then be effectuated by contacting the credit bureau and requesting that the mistake be corrected.

For struggling credit card holders, a poor credit score that is left unaddressed often outlives the events (foreclosure, bankruptcy, unpaid credit card bills, etc…) that triggered it in the first place. The importance of a healthy credit rating cannot be overestimated: A credit check is performed for mortgage, credit card, car loan, home loan, insurance, or employment qualification. As indelible as it might seem, however, a bad personal credit history can be wiped out and a good rating re-established. With a little patience and perseverance, borrowers can effectuate a credit history repair.

The most successful methods for achieving a credit repair are as follows:

1. A compromise repayment plan

Consumers wrestling with credit card debt should not hesitate to discuss their financial plight with their lenders. This is because the majority of creditors extend short-term hardship programs that lower debtors’ monthly payments. Borrowers could, for instance, negotiate an affordable repayment plan that will settle 30-40% of outstanding balances, an arrangement that is acceptable to most lenders. Creditors are willing to accept a partial settlement, since it is preferable to not receiving any payment at all, in the event that the borrower files for bankruptcy.

Upon payment in full of the settlement, the debtor must obtain a settlement letter documenting the poor credit repair. He or she will then mail a copy to the three credit bureaus (Equifax, TransUnion and Experian) for purposes of updating the credit report so that it reflects the paid settlement.

2. Timely bill payment

It is primordial that borrowers make their payments on time since payment history is the leading factor in the calculation of credit score, constituting more than one third (35%) of this indicator. Late payments adversely impact a consumer’s credit card rating.

3. Paying off debts

The total outstanding debt comprises almost one-third of a debtor’s credit score. To improve credit, card holders should get current on their delinquent accounts. They can do so by paying the minimum amount due in a timely manner to each creditor. After applying any left-over funds to the lowest outstanding balance, credit card borrowers should “snowball” their payments to the next lowest balance.

4. Keeping delinquent accounts open

Consumers should not close accounts with balances since this will negatively impact their credit. Rather, consumers should opt for high credit limits and maintain low balances. By doing so, they will demonstrate to lenders their ability to manage high balances. Borrowers can boost their credit rating by paying off a high balance.

5. Keeping a few accounts open

Since frequent closings of numerous accounts is regarded as a sign of financial instability, credit card holders should not close more than one or two accounts semi-annually. Preferably, the two oldest accounts should remain open, since length of credit history is the third most important factor in credit score computation.

6. Cease using credit cards

Consumers immersed in credit debt should cut up or avoid using their cards and strive to pay at least the minimum on each account.

7. Closing unused accounts

Debtors should only keep open a couple of accounts to reclaim credibility in the eyes of creditors by proving their responsible usage of credit. After closing superfluous accounts, borrowers should inform the credit-reporting agencies of the status change.

8. Holding off on additional credit applications

Consumers trying to repair their credit history should refrain from submitting more credit card applications, since this will lower their credit score. The number of inquiries that a lender makes vis-a-vis a prospective borrower’s credit report determines 10% of the credit score.

9. Reduction of credit limits

Debtors should ask their lenders to lower the credit limits on their accounts. Creditors take into account the total sum available credit even if the customer is current in his or her payments.

10. Co-signing a credit card or loan

Consumers should consider getting a friend or relative to co-sign on a credit card or small loan. By making timely payments on co-signed credit, debtors will be able to rebuild their credit rating.

11. Obtaining a secured credit card

Another way that borrowers can reestablish their credit is by using a secured credit card, which works as follows: A debtor supplies the funds up front by placing a specific amount of money in an account. Whenever he or she charges the card, the funds are tapped from his or her account. With each timely payment, credit repair is furthered.

12. Cleaning up the credit report

Pursuant to the Fair Credit Reporting Act (FCRA), borrowers are entitled to dispute erroneous information in their credit report. Consumers should review their credit report for accuracy; if a mistake is spotted, they should request that the credit bureau remove the negative item. A revision of the credit report can contribute to credit history repair.

13. Obtaining a Credit Union loan

Borrowers should consider applying for a prepaid credit card or a loan from a credit union and making payments on the latter from a savings account. With each payment that the debtor makes, he or she will improve credit and build a positive credit history.

14. Professional credit repair help

Credit card debtors may wish to opt for professional assistance by contacting a credit counseling service. Credit counselors will create a debt management plan (DMP) that enable borrowers to repay their credit card debt. They will also negotiate extended payment plans and lower rates of interest with lenders. Debtors could then apply the reduced interest rate savings to payment of the debt, which will in turn help to repair their credit.

15. Creating a budget

Financial discipline pays dividends. By devising a budget to spend only within their means, reduce their expenditures and direct savings to repayment of their credit card debt, consumers will be able to repair their credit history.

Consumers living paycheck to paycheck are the first to admit that falling into credit debt is no laughing matter: Merciless collectors hounding them, a tarnished payment history haunting them, and the specter of bankruptcy looming before them. Economically-stranded consumers oftentimes lack the wherewithal and tools needed to create a workable budget and manage their credit card debt effectively. Credit counseling agencies help fiscally-out-of-shape borrowers regain their financial fitness. They enable credit card holders to achieve a debt-free existence by teaching them how to properly manage their finances and negotiating with creditors on their behalf.

The nation’s top two providers of consumer credit, debt reduction, and educational counseling that are making a palpable difference in borrowers’ lives are 1) the National Foundation for Credit Counseling (NFCC) and 2) American Consumer Credit Counseling (ACCC). The NFCC, which has been in existence for more than 50 years, has earned the most stripes in the credit counseling industry for furthering “a national agenda for financially responsible behavior”. Its members are non-profit organizations committed to furnishing low-cost and free services to individuals afflicted with debt, such as that arising from credit cards. As for the ACCC, it is a non-profit 501(c)(3) organization that provides debt-reduction guidance, debt counseling, and confidential credit management skills to borrowers nationwide. What follows is a synopsis of the financial counseling services that these two organizations deliver on a daily basis to borrowers:

Credit card debtors can avail themselves of the services of professional, certified counselors who will help them determine the optimal solutions for their individual needs. FCC members offer either gratuitous or affordable, comprehensive budget counseling to their clientele. The one-on-one sessions are private and confidential in nature and conducted either in person or via telephone or internet. Consumer credit counselors create a question and answer forum to address consumers’ debt issues and perform an objective analysis of the latter’s financial dossier and predicament. The counselors thoroughly review their customer’s budgets by examining income, liabilities, and assets and then proffering options as well as a debt-tackling plan. The average cost of personal budgeting counseling is $13.

NFCC counselors provide money management instruction to assist consumers drowning in credit card debt. By devising a customized plan for their clients, they offer concrete resolutions for their current financial situation and help them avoid further indebtedness. For borrowers who are considerably entangled in credit card debt, NFCC counselors will recommend enrollment in the Debt Management Plan (DMP), a monthly program that lowers consumers’ bills and combines them into one easy payment by means of a credit card consolidation. Basically, clients pay off their debt by submitting monthly deposits to the NFCC, which in turn disburses the funds to the creditors. Consumers who enroll in a DMP typically benefit from diminished collection calls and waived or reduced finance fees. It usually takes about 30 to 60 months to repay the outstanding debt through a DMP. The average monthly fee for enrollment in the NFCC’s DMP is $14, and the average start-up charge is $23.

The ACCC’s certified and professionally-trained counselors also offer premium evaluations of credit card borrowers’ financial circumstances. First, they assist customers in budget-creation and offer confidential education and counseling classes on proper budgeting and credit card usage. By analyzing their clients’ budget, ACCC counselors can decide whether a debt management program is appropriate for the former. Credit card debtors may take advantage of an online budget worksheet by consulting the ACCC’s website at www.consumercredit.com.

An ACCC counselor enters, on behalf of his or her client, into negotiations with lenders for a potential reduction of:

Over-the-limit charges and late fees

They also negotiate with creditors for an extension of the credit card debt’s repayment date. The ACCC has its own debt management program which enables consumers to simplify their monthly monetary obligations and to save money through lower monthly payments. If counselors determine that a borrower would benefit from a debt management program, they will place all the resources at his or her disposal, consolidate his or her payments and distribute them to the lenders. To enroll in the ACCC’s debt management program, consumers are required to pay a one-time processing fee of $39. The fee is waived for veterans, students, senior citizens, and individuals undergoing extreme hardship.