7 Tips To Bounce Back From A Credit Score Disaster

Millions of Americans are suffering from dinged-up credit as a result of the recession. Regardless of what has happened to you financially - whether you have gone through foreclosure or bankruptcy or made a seemingly less major financial mistake such as making late payments on your credit card bills - it is possible to rebuild your credit. Here's how.

It's critical that you understand how much income you have coming in versus how much you are spending both on fixed expenses and variable expenses. Until you get a clear picture of your financial situation, you won't be able to make changes to rebuild your credit. You can use software like Quicken or Microsoft Money to build your own budget. Next, identify your financial priorities and make changes like boosting your income and/or reducing your expenses.

You need to know where you stand credit-wise before you begin working with creditors and making different financial choices to improve your credit score and standing. By law you are allowed to obtain one free copy of your credit report annually through Annualcreditreport.com. Request a copy and review it carefully. If there are any errors, contact the agencies in writing (make sure you keep a copy) and ask them to investigate the issue and make the correction.

It is always best to contact your lenders or services providers (such as your utility companies or physicians) as soon as possible when you face financial difficulty so that you get their help to stay current on your accounts. Call, email or write your creditors to explain your financial situation (for example, if you have experienced a job loss or unexpected set of expenses like a medical emergency). Discuss a new payment plan and make a good faith payment to begin improving your account status.

Credit reports record your payment habits on all type of bills and credit extended, not just credit cards. To improve your score make sure you pay all your bills on time including your rent/mortgage, utilities, doctor's bills, etc. Keep documentation (like canceled checks or receipts) to be able to prove that you made timely payments.

Job stability is a good indicator to other lenders that you will have the ability to repay a loan. If you have a spotty resume, make the choice to stay in your current position for at least a year or two to build lenders' confidence.

Once you have begun working on a repayment plan for your existing debt be sure to use any credit cards or loans you have wisely. Make payments on time, avoid going over your limit and pay the balance in full or make at least more than the minimum payment due each month or billing period. If you don't have a credit card or you closed your accounts, you may want to consider applying for a new account only after you have consistently stuck to your budget for several months to begin rebuilding your credit history.

If you are approached with an offer of help to negotiate your debt, make sure that you receive a copy of the "Consumer Credit File Rights under State and Federal Law" and a detailed contract for services including contact information, stated guarantees and an outline of fees and services before you provide any personal information or turn over any financially-related documents. Ask for references, do online research and keep copies of all paperwork and correspondence in case a dispute arises.