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- 1). Review you credit report. The government mandates a free credit report for all citizens each year. Look carefully for the following: late payments, judgments, charge-offs, fully utilized lines of credit and recently closed accounts. All of the preceding are negative aspects of credit. If you have one or more of those items, you'll probably see it reflected in your credit score. A good score is more than 700, while a poor score is less than 550.
- 2). Meet with a trusted financial advisor--not an investment advisor, but simply someone who handles credit problems for customers. Bring all past accounts that are delinquent, overdue and charged-off. Bring evidence of all paid accounts and structured payment plans you have worked out with your lenders.
- 3). Discuss an action plan with your advisor. Contact all companies with whom you have a negative credit relationship. Your attempt to clear up your debt signals to the company your commitment to honoring your agreement. Handle all charge-offs first. A charge-off is an account that is seriously delinquent and has been written off as a loss by the lender. It may be contracted to a collection agency, but either way, focus on repaying these debts first, as they are the most toxic.
- 4). Focus next on bringing all delinquent accounts current. You may be able to work out a payment plan with some lenders, which is why it is best to contact all creditors and let them know you are working toward getting yourself back into financial shape.
After you've paid your charge-offs and delinquent accounts, begin to cut debt. A large part of a credit score is determined by the amount of revolving debt you have versus the amount of available revolving credit. If that ratio is over 50 percent, your score will begin to drop. Make your next goal to get this figure below the 50 percent ratio.
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