How To Rebuild Your Credit After A Financial Disaster In 3 Steps

Updated: April 17, 2019

When you’re in the middle of a financial disaster, it can feel like it takes all of your mental energy just to survive. If you’re going through an illness or medical emergency, a job loss, or a divorce, your credit might be the last thing on your mind.

Yet, hopefully, it won’t remain that way forever.

Once the dust settles and you’re back on your feet financially, it’s time to start thinking about how to rebuild your credit. No matter how bad it looks now, you don’t have to be stuck with bad credit for the rest of your life. If you take the right baby steps, you could be on the path toward credit recovery before you know it.

Here are three tips to help you get started:

1. Pay Down Debts

Did you know that the debt you carry can have an influence on your credit scores–often not in a good way? As a result, when you pay down your debts (at least the right debts), there’s a chance you could improve your credit score.

If you’ve started to recover financially from your disaster, you may be ready to tackle some of your outstanding debts. Perhaps you have a tax refund or a bonus check you want to use toward this goal.

Here’s the catch: Different types of debt can have different impacts upon your credit scores. If you want to get the most bang for your buck, it’s helpful to know which accounts you should pay down first.

Consider bringing past due accounts current.

Have current accounts on your credit reports which are being reported as past due? There’s a good chance they are damaging your credit scores. Bringing those accounts current might have a positive impact on your scores. It also might help you to avoid the closure of those accounts due to nonpayment.

Consider paying down credit cards.

Even when credit card payments are on time, revolving an outstanding balance may be harmful to your scores. This is especially true if you’re using a high percentage of your available credit limit. Yet if you pay down your credit card debt, your scores might improve. At the very least, paying down credit card debt could save you money which you’re losing on expensive interest fees each month.

2. Establish New Credit

Sometimes after a financial disaster you may find yourself without any open, current accounts on your credit reports. If this describes your situation, it may be time to consider establishing some new, positive accounts.

Of course, you’ll need to apply for the right kinds of accounts. Otherwise your damaged credit could prevent you from qualifying.

Here are a few options to consider:

Think about secured credit cards.

Even with credit damage, you may be able to qualify for a secured credit card (where you typically put down a deposit with the issuing bank which is equal to your credit limit.)

Look into credit builder loans.

Local credit unions and online lenders may be willing to issue you a credit builder loan, even with credit problems. The loan is low risk for the lender because it holds on to your funds (typically in an interest-bearing savings account) until you make your final payment on the loan.

3. Check Your Credit Reports

You might not realize it, but it’s your personal responsibility to make sure the information on your credit reports remains accurate. If you don’t check your three credit reports for errors, no one is going to do it for you.

Unfortunately, incorrect information ends up on credit reports often — typically due to credit reporting mistakes or fraud. When negative information appears on your credit reports, it might damage your scores (whether the information is correct or not).

This is why it’s so important to check your three credit reports from Equifax, TransUnion, and Experian frequently. You can claim a free copy of your three credit reports once every 12 months from

When you get your reports, review them carefully to make sure your information is accurate. If you find mistakes, the Fair Credit Reporting Act gives you the right to dispute those errors with the credit reporting agencies and your creditors directly.

Michelle Lambright Black is the founder of and She is a leading credit expert with over a decade and a half of experience and an expert on credit reporting, credit scoring, identity theft, budgeting, and debt eradication. Michelle is also an experienced personal finance and travel writer. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

Feature Illustration: Laura Caseley For The Money Manual