Take the right approach to a drop in your credit score

How to develop your own road to recovery

Despite the best of efforts, life’s circumstances can affect a person’s financial health without warning. This could include a sudden loss of income or even an unexpected hit to savings — both of which could indirectly affect your ability to maintain a good credit score.

Each person’s credit situation will vary, but there are a few steps on the road to recovery that could help.

What does a credit report look like?

First, it’s a good idea to know what’s on your credit report. It gives you a detailed picture of your credit health by providing information about the status of credit card and loan accounts — both good and bad. It shows whether you’re paying on time and meeting your debt obligations as well as how much credit is used (known as credit utilization).

When a payment is late, the credit card limit is exceeded, an account is in collections or the utilization rate is high, these factors will appear on your report and negatively impact the score.

You’re entitled to view your credit report at least once a year for free via one of the three major credit bureaus. After gaining a clear picture of what may be causing a lower credit score, you can plan on how you might fix it.

Start the road to recovery

The path to better credit will vary based on each person’s circumstances. Let’s take a look at a few scenarios and how to possibly address them.

If the problem is with collections, you might want to contact the debt collector and work out a payment agreement. The collections agency may be able to offer a monthly payment that is manageable based on your individual circumstances.

Or, if the problem is maxed out credit cards, it may help to first look at each of the credit card limits. Then, payments can be made on each card to bring the card balances below those limits.

Debt consolidation loans or balance transfer credit cards could be options to help with repayments.

Maintain a good credit score

As the road to credit recovery leads to an improved credit score, it’s important to maintain habits that will keep that score. For example, as you use credit, you can try to pay off that purchase before your next statement due date. If that’s not possible, paying a bit more than the minimum payment can help ensure you don’t reach a limit or wind up back in a situation where you default.

For loan payments, it may help to set reminders about due dates and, if possible, enable autopay. This way, bills are paid every month and there’s less of a chance for late or missed payments.

Maintaining good credit health looks different for everyone. It’s important for each person to find a plan that works best for them and develop habits to stick with that plan.

Remember that the road to recovering from bad credit may not be fast and easy. Understanding that this process takes time may help reduce stress from the situation.

If you’re in dire financial straits, and not sure what to do, nonprofit, Consumer Credit Counseling Services might be able to help.

This page and the information contained herein is for educational purposes only. The information is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any product, service, or strategy to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any links to other websites are included for your convenience only. Bread Financial does not endorse any product or service, and is not responsible for the accuracy or reliability of the information, made available through such sites.