A poor payment history can severely damage your credit score, making it difficult to obtain credit for major expenses such as a house or car. It occurs when you have failed to make payments on your debts on time or have missed payments altogether. If you find yourself in this situation, it’s not the end of the world. There are steps you can take to recover from a poor payment history.
1. Get current on payments
The first thing you need to do is get current on any existing debts. If you have any collections, don’t ignore them. Call or write to the creditor to see if you can work out a payment plan or a settlement. Even if you can’t, paying it off in full will be much better than ignoring it, as it will already reflect poorly on your credit report.
2. Build positive credit history
Once you’ve caught up on any unpaid bills, you should take steps to build positive credit history. Apply for a secured credit card or a credit-builder loan. These are designed for people with poor or no credit history, but they can help you to build credit as long as you make all payments on time.
3. Keep low balances
Another factor that affects your credit score is your credit utilization ratio. It’s the amount of credit you’re using compared to your total credit limit. You should aim to keep the balance on your credit cards as low as possible to keep the ratio low. This shows that you’re a responsible borrower who can manage credit efficiently.
4. Make all payments on time
Late payments can have a serious impact on your credit score. So it’s important to make all payments on time, every time. Set up automatic payments for your minimum payments or set reminders for yourself if needed.
5. Monitor your credit report
Check your credit report regularly to ensure that all the information is accurate. You can access a free credit report from each of the three major credit reporting agencies once a year. If there are any inaccuracies, dispute them right away.
In conclusion, recovering from a poor payment history will take time, but it’s possible. The key is to get current on existing debts, build positive credit history, keep low balances, make all payments on time, and monitor your credit report regularly. By following these steps, you can improve your credit score and get back on track financially.