Posted by Maneesh Sethi :: July 9, 2007 @ 11:44 am

In part 3, we talked about how to maintain good credit. Here, in part 4, we will talk about how to fix your credit if it’s in bad shape.

It’s a lot easier to keep good credit than to improve your credit, but what do you do if your credit is bad? A 2005 Nellie Mae study showed that the average credit card debt for college students was $2,169, and over 44% didn’t pay the full amount on their card each month. Additionally, the average debt for seniors was 80% higher than for freshmen!

With debt increasing at that rate, it’s no wonder that many students leave college with a lot of credit card debt. Add student loans, and it’s no surprise that some graduates are in such a deep hole that fixing their credit seems impossible. It isn’t impossible! You can fix your credit, but it won’t be easy. The hardest part is breaking bad habits.

First of all, grab a copy of your credit report from the three major reporting bureaus. Bankrate.com has a helpful article with information on how to access your credit report. After you have your report, make sure there are no errors in it.

Next, start paying off your debts with the highest interest rates first. Then, slowly begin reducing your loans. Your FICO score does relate to the length you keep the accounts open, so you may want to keep the accounts open, even though you should stop using them.

You might also want to work with a non-profit credit counselor. Beware of debt reduction schemes---they can sometimes get you even more in debt! Non-profit counselors can help you, and you can learn more about their services at the National Foundation for Credit Counseling. These counselors can help consolidate your loans and often you can get better interest rates.

Once you are finally back on your feet, you should begin to use your credit card slowly, and always pay off the balance each month. If you can continue to do this, your credit score will slowly get better and better.

If all else fails, you can declare bankruptcy. Bankruptcy should be the last option, used only if you are so deep in debt you don’t think you will ever be able to pay it off. Check out http://www.ext.vt.edu/pubs/family/354-045/354-045.html for more information.

If you continue to practice good spending habits, you will probably be able to save your credit. Even if you made mistakes when you were younger, your credit doesn’t always have to be bad! Good luck!