Though it might seem impossible to truly fix your credit score if you have earned yourself a less than stellar average credit rating, there is still a way to reestablish and rebuild your credit. It will not be painless and it might not be as fast as you would want it to be, but with a little patience you will be able to get your credit back on track if you follow these 4 steps.


Identify the problem

The first step in rebuilding your credit entails knowing the reason behind the bad credit score. There can be several reasons why you earned that bad rating and some of those reasons could possibly have been beyond your control. Reasons such as sudden medical confinement due to illness or injury, divorce or separation, and unemployment are circumstances that you could not have anticipated and prepared for. However, if you happen to have been caught up in any of these unfortunate circumstances then it would be easy to figure out why you got such a bad credit score.

On the other hand, if there is no clear reason why you got into such a bad credit situation, then you should consider looking at your annual credit report and going through your past transgressions. If you still cannot pinpoint the exact reason, then you might want to ask for a second opinion. This could be as simple as consulting with a trusted relative or friend, or even with a professional credit counsellor or financial planner.


Create a budget and follow it through

One of the most common reasons why people end up spending over their means and destroying their credit rating is the fact that they have not made a budget for their expenses. A budget can help you plan your expenses accordingly and it can also help you keep track of the money that you spend versus the money that you save.

Having a separate savings account is crucial for those emergency situations such as injuries or illnesses since they extra funds can help to cushion the added expense. Having savings on hand can help you escape from debt if you are not already drowning in it due to your past careless spending habits.

To make it easier to stick to a budget, allocate at least 20% of your earnings to your savings account and divide the rest of your paycheck for your utilities payments and other bills. You can treat yourself to something with any extra cash, but you should make sure that you still have enough in the bank to help cover the costs of emergency hospital trips, home repairs, and car repairs.


Make your payments

Late payments can only worsen your credit score over time. The best way to deal with the problem is to simply catch up on your bills and to ask for advice from your creditors or credit counsellors if you need some professional assistance.

In Canada, people who are suffering from debt issues often find that the best way to get out of the cycle is by enrolling in a non-profit debt repayment program and paying for their late payments one month at a time. Eventually, they will be able to clear themselves of debt and gain the chance to start with a higher credit rating.


Rebuild and reestablish your credit

Once you have caught up with all of your payments, you can now work on rebuilding your credit. The best way to do this would be to maintain at least one active credit account which can then be used to generate a positive score for your report. After all, paying off your debts might clear you of bad credit, but it will not give you any working score.

Having a credit card, and overdraft account or a line of credit will help the credit bureau get a more accurate rating of your current credit habits. Meanwhile, maintaining an active credit account and using it responsibly by sticking to your budget and payment schedule will enable you to get a positive score.