5 Tips to Clean Up Your Credit After Addiction Shattered It

5 Tips to Clean Up Your Credit After Addiction Shattered It

By In Addiction Recovery, First Steps, Tools for Recovery
Posted August 15, 2017

Addiction has a negative impact on many aspects of life, including finances. When someone is struggling with addiction, it’s common for bills to go unpaid, savings to get depleted, and extensive borrowing to occur.

As a result, you may end up with a low credit score. If you’re now on the path to recovery and hoping to lead a positive, healthy life, you’ll likely want to clean up your finances.

Repairing a shattered credit score won’t happen overnight, but it’s certainly doable if you follow these five steps.

  1. Check Your Credit

There are three major consumer reporting agencies in the United States: Experian, Equifax, and TransUnion. According to Forbes, it’s best to check all three credit reports, because you never know which report will be used. If there’s a mistake on even one of the reports, you’ll want to know about it.

And according to the FTC, 1 in 5 people has an error on at least one of the three reports. 5% of these errors could result in higher payments on loans, insurance, etc.

Fortunately, you’re entitled to one free credit report per year, which you can get at Annual Credit Report. You’re able to get all three of the major credit reports at once.

The most commonly used credit score is FICO, and you will have to pay a small fee to check this score. You can also sign up for myFICO, which helps you better understand your credit reports and even has a Score Simulator that lets you test out how various scenarios will affect your credit. It’s $30 a month, but it’s a great tool for someone trying to rebuild credit.

  1. Organize and Prioritize

A journal with a woman writing in it.

If you don’t get organized, you may feel overwhelmed and unsure where to start. Begin by making a list of all open lines of credit in your name, as well as any other debts that you owe.

When repaying lines of credit, prioritize those with the highest interest rate first. You can also find your utilization rate by dividing your credit balance by the credit limit, then multiplying by 100. Typically, a higher utilization rate has a worse impact on your credit score. So if your interest rates are similar, you can prioritize the lines of credit with the highest utilization rates.

You can also develop a reasonable financial plan for paying back all of your debt over time. Be sure that your plan leaves enough money for your current bills and other monthly expenses.

  1. Call Creditors

Most creditors are willing to negotiate, as long as you indicate that you’re willing to repay your debt. You should be able to work out payment plans with your creditors. This way, you can make smaller payments on your debts over a period of time.

Make sure you also record this information. Keep track of what payment plans you’ve arranged with various creditors and when these payments are due each month.

  1. Pay Bills on Time

You will be repaying your previous debts and working to rebuild credit, but it’s also important to keep up with your current bills. You don’t want to increase your debt, and you’ll gradually improve your credit score by consistently paying your bills on time. Write your payment dates on a calendar, set reminders on your phone, or set up auto-pay to avoid late or missing payments.

A calendar open on a table.

  1. Consider Getting a New Credit Card

It may sound counterintuitive to open a new line of credit while working on cleaning up your credit after addiction.

However, making consistent payments on a secured credit card will improve your credit score. Use the card for minor expenses only, then pay off all expenses on time. Of course, only make this move if you’re confident you can keep up with payments without causing more stress.

Recap

Don’t panic or give up hope if your finances are in ruin after addiction. You can clean up your credit by:

  • Checking your credit reports and credit score.
  • Organizing and prioritizing your debts.
  • Calling and negotiating with creditors.
  • Paying bills on time.
  • Getting a new credit card (and making consistent payments).

It won’t happen overnight, but if you diligently follow these steps, your credit will significantly improve!

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