These days, people are finding that their once solid credit rating has fallen faster than the stock market, and they are in danger of spending the next few years dealing with high interest rates and credit rejections. Millions have been foreclosed on, gone bankrupt or fallen behind on their bills during these tough economic times, and they are looking for a way out.

Your credit is not written in stone. Your FICO credit rating can change based on how seriously you take the task of repairing it. While you may have a FICO score of 500 right now, through hard work you can get that credit rating back up to 650 or higher in no time. In fact, repairing your credit is a step-by-step process that can be made very easy when you know how to do it.

First, you need to cut out all the expenses you don’t need. Renting a movie or going out to dinner a few times a week may be nice, but it’s unnecessary. Instead, save that money and put it into a savings account so that you can build a float that will help you pay your bills. Why are paying your bills important? For the simple reason that one missed payment can lower your credit rating significantly. Paying your bills is incredibly important, which brings us to our second point of credit repair.

Second, pay your bills on time with as much as you can. When you pay your bills on time, your credit rating will improve because you are showing a payment history where you make regular payments on time and for how much you owe. It can be hard to pay your bills of course, but that is where minimum payments come in. By making minimum payments on your bills and credit card, you can keep the interest from piling up. Even making minimum payments on your credit card will help improve your credit rating. That being said, you cannot rely on minimum payments forever. You will have to continue to save your money in order to pay everything off.

Third, limit your credit cards to two. Having one credit card can hurt your credit score because it will look like you are inexperienced with credit, while having four credit cards will make you look like a compulsive borrower. Therefore, limit your cards to two or three and make sure you always make at least the minimum payments on all of your cards every month. The worst thing you can do for yourself is to fall behind on credit card payments.

Lastly, you should always know what your credit rating is. This means getting your credit score report on a regular basis and finding out what your score is. When you know your score, you know what kind of interest rates you will get on loans, whether you will get a loan and what kind of terms you will have on it. People don’t realize that applying for credit and not getting it can also hurt your credit score. Only apply when you know your credit score is good enough. Checking your credit report will also allow you to look for errors that may be on the report. This is very common and as many as 75 percent of all reports have errors on them.

It may seem like you are drowning in debt and your credit rating is falling faster than you can repair it, but by taking the time to sit back, look at what you owe and begin repairing it in a concise fashion, you should be alright.

By: Dr. Jennifer Baxt, DMFT