You worked hard to create an attractive credit rating. It took effort and years to develop, and eventually you reached the top of the scale. And then something happened that caused your credit scores to go backwards.

Although credit damage is disheartening, take heart. You know that you are a responsible borrower and don’t want to be judged by an anomaly. Here’s how to reestablish an excellent credit reputation based on your true capabilities.

Identify and explain the issue

Pinpoint why your credit took a downward turn. For example, maybe it was because of the pandemic and you were unable to earn as normal. With a lower income and the same or higher bills, you fell behind on your loans and credit cards. Or perhaps you experienced an expensive financial emergency. Without the means to cover the cost with cash or assets, you maxed out your credit cards.

Identifying the reason for the credit decline is important. It can help you prepare for the same situation should it arise again (though some are unavoidable) and set the stage for effective communication. Most people experience financial problems at some point in their lives, but your bank won’t know what happened and what you’re doing unless you tell them. Contact your lenders and explain what led to the troubles. Emphasize your positive past, and how you are getting back on your feet now.

Concentrate on Greatest Credit Factors

Because you developed a high credit rating before, you probably understand what it takes to do it again. It’s easy to lose sight of what really impacts your credit, though. You’ll want to feed plenty of positive data to your credit reports, since credit scores are developed from that information.

Concentrate on activities that will deliver the biggest results: how you pay and the amount you owe.

Payment history

The most commonly used credit score is the FICO® Score, which weighs payment history most heavily. Therefore if delinquencies are noted on your file, especially if they happened recently, they’re almost certainly dragging your scores – and your credit reputation – down. From this point forward, pay the accounts that appear on your credit report on time. While late payment notifications will appear on your credit file for a total of seven years, their impact will fade as you flood your credit report with a long, steady flow of on-time payments. Eventually the delinquencies will look like an aberration rather than an accurate portrayal of your creditworthiness.

Credit utilization

The second major factor in a FICO Score is credit utilization. Carrying over a large amount of debt compared to your credit card limit will hurt your credit standing. Thankfully you can make almost immediate reparations by opening the ratio. A good rule of thumb is to have at least 70 percent of your credit line available, both per card and on combined accounts. 

There are a few ways to expand the utilization ratio:

• Make large payments. If you don’t have funds at the ready, consider selling unnecessary property and sending the profits to the accounts. Another option is to lower expenses or increase income so you can make larger payments.
• Request a higher credit limit. For example, if you owe $750 on a card with a $1,000 limit, you’ve use up 75 percent of the line. But if the card issuer agrees to hike the limit to $2,500, that same debt drops to a healthier 30 percent.
• Open another credit card. The new line of credit will dilute the utilization ratio of your overall credit limit. Be aware that this strategy can affect the length of credit history (the third weightiest FICO Scoring factor) but the net effect may be positive.
• Use a debt consolidation loan. By shifting revolving balances to an installment loan, your credit scores can quickly escalate. Loans aren’t included in the credit utilization calculation, and the now empty credit cards will work in your favor.

Monitor – and celebrate – your progress

To see how you’re doing, pull your credit reports from annualcreditreport.com and review them carefully. They should only show accurate and current information. If you spot any mistakes, dispute them so they’re removed and aren’t factored into your scores. Also keep abreast of your credit scores. Check them every few months. Your activity should be pushing those numbers upwards.

As you can see, there’s no reason to despair. You can rehabilitate your credit. In time, your reputation with existing and future lenders will be impressive again.