How to Recover from a Bad Credit Score

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While the circumstances vary, many of us have found ourselves with the same problem — a low credit score. Accumulation of high credit card balances is something that not only results in higher monthly payments, but also has a negative effect on insurance and interest rates. Because of the scope of its effects, it’s easy for it to spiral out of control, resulting in bankruptcy or home foreclosure. There is, however, always hope.

Several things can help raise your credit score. For instance, if you have one or two credit cards with high balances, you can alleviate some of your bad credit woes by obtaining a balance transfer card and transferring some of the balance to your new card. Credit cards are not all the same and can help or hurt you depending on your financial situation, so always be sure to research and read all of the details before applying for credit. It’s important to find a credit card that’s a good fit for you and will help you reach your financial goals.

In general, credit cards themselves aren’t a bad thing, as long as they’re managed correctly and monitored regularly. The task at hand is to get one or more of the balances below 30% of that particular card’s credit limit, as using less of your available credit reflects well on your credit rating. In other words, the lower the balance, the better. It’s important to remember that you won’t get there by paying minimum payments. You should pay above your minimum payment as often as possible.

Something that can become increasingly harder to do, as your credit debt increases, is paying your bills on time. Paying your bills, especially personal, home, student and auto loans, is key. If you don’t have any of these types of loans, consider contacting a local credit union. Often credit unions offer extremely low rates on personal loans and credit cards. In addition, their penalties tend to be less harsh, which can certainly pay dividends in the long run.

Unexpected events occur in our lives, and if you must miss a payment or find yourself over your credit limit, a hefty penalty can be debilitating to your credit score and overall financial recovery. Also, by holding more than one type of account, it shows that you’re able to manage multiple types of credit, which reflects positively on your credit score.

Many people will see the allure of having their debt cleared, and consider filing for bankruptcy. While in some cases it could be the best option, often it’s not. Talk to a debt counselor and work hard to utilize some of these other methods to avoid the long-term effects of bankruptcy, which remains on your credit report for 7-10 years.

Because each financial situation is different, there is no ultimate fix that solves everyone’s financial woes. Utilize multiple methods of recovery, and as you rebuild your credit, hopefully, you will also be building good habits for the future. A key to financial health is not only having good spending habits, but also managing and diversifying your spending to maintain strong credit in the future.

NerdWallet is a personal finance website dedicated to helping consumers with any credit score find the best credit card offers for their spending needs.