Most of us have made mistakes with our money. But what happens when you make a big, credit-destroying mistake? And it doesn’t even have to be a massive mistake like those that result in foreclosure or bankruptcy. Simply overlooking a utility bill when you move, or canceling a gym membership improperly, can result in a huge credit score drop.
On top of that, a lot of little problems can add up to one big mistake if you aren’t careful. It can be discouraging to make these mistakes and then watch your financial life fall apart. The good news is that your credit doesn’t have to stay like that. Here are 5 ways to improve your credit after making a big mistake:
1. Make All Your Payments On Time
If part of your problem has been missed and late payments, the best thing you can do to start improving your credit score is to make your payments on time and in full. Create a list of all of your obligations and bills. Make sure you know when all of them are due, and pay on time. This includes non-credit bills, since missing them can result in your account being sent to collections and costing you big time down the road.
Once you have a schedule in place, you can see when everything is due, and get in the habit of making payments regularly. This will go a long way toward helping you improve your credit. If you are having trouble, talk to your creditors and see if you can work out a payment plan that works better for you. Communication is key.
2. Look for Additional Income
Your income isn’t reported on your credit report, and it doesn’t affect your credit score. However, if you find yourself pinched for the cash you need to make all your payments on time and in full, it can be a good idea to look for additional sources of income. Income diversity not only helps you now, but it can also protect you in the future, by keeping you from being completely dependent on your day job.
You can also cut costs, but realize that there is only so far you can cut expenses before you run out of things to axe from your budget. Cultivating additional income can help.
3. Rebuild with the Help of a Secured Credit Card
If your big money mistake has made it difficult for you to get loans, and your payment plans with creditors mean that you can’t get an unsecured credit card, you might need to rebuild in another way. A secured credit card can help you improve the situation. You will have to provide a deposit, but, in the end, you have credit, and you can start rebuilding. Make sure that you use the card within your budget, and you pay off the balance — on time — each month.
Don’t make a lot of purchases with this card. The idea is simply to re-establish your credit situation. Make a couple purchases a month, show you are responsible. After a few months, you can ask to have the card converted to an unsecured card, and your credit will be a little closer to being rebuilt.
4. Live Within Your Means
At this point, you need to be living within your means. Whatever it takes to keep your expenses lower than you income is important. Create a spending plan to keep you on track. Plan out your purchases so that you don’t find yourself over-spending. Earn more and spend less.
Part of this process is also building an emergency fund. You need to have assets available to you. Prepare ahead of time so that if you run into financial trouble down the road you won’t be stuck in this place again. This means completely changing your money habits and reforming your relationship with money.
5. Get Professional Help
If you feel overwhelmed, consider getting professional help as you recover from a big money mistake. A good financial planner can help you put together a plan of action. You can also get help from certified, non-shady credit counselors who can provide you with direction and advice. With a little help, you should be able to get back on your financial feet. And hopefully avoid future big money mistakes.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.