Expert Q&A

Fixing damaged credit? First, create a budget

In fixing damaged credit, regular payments are a must, and you have to get a budget before you can know what you can afford to pay


If you have an account that is past due and either in collections or close to being in collections, the damage to your credit score has been done. While a history of on-time payments does help your score over time, the damage done to your score by the late payments is much harder to overcome.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

QuestionDear Credit Wise,
Which is better: paying an account in full, or talking to the creditor about getting back on monthly payment arrangements to pay the account and bring it current? I wanted to know because I was thinking monthly payments would allow the creditor to report current monthly activity to the credit agencies which would bring a positive point increase to your score. Is this true? What would you recommend? — Gramse

AnswerDear Gramse,
Although you didn’t specifically say this in your question, I believe you are talking about an account that is past due and either in collections or close to being in collections. If that is the case, the damage to your credit score has been done. While a history of on-time payments does help your score over time, the damage done to your score by the late payments is much harder to overcome.

The larger question here is whether your creditor will agree to a monthly payment program. From what you have told me, it appears that you are now in a position to pay off the account in question. That could work in your favor with your creditor by demonstrating to them that your financial troubles are behind you and you are now in a position to make regular payments.

It could also be that the creditor will simply demand payment in full, as is their right.

If you are able to talk the creditor into monthly payments, be very sure you will be able to follow through. As I have pointed out before, it takes a lot more time to increase a credit score than it does to bring it down. If you get on a payment plan and find that you cannot make the payment down the road, you will find yourself in a much more precarious position. You must make your payments on time, every single time for an extended period of time in order to see an increase in your score.

If you have not already done so, I would recommend that you develop a written budget that you can live with before you make your call to the creditor. Be sure to include all of your income and all of your expenses. A helpful tool for preparing a livable budget is to keep track of all the money you spend in a month. This includes your regular monthly bills and all purchases you make — even it’s just a cup of coffee or a Coke from a vending machine, write it all down.

This can be an eye-opening experience to that will show you where your money really goes. If you find yourself spending too much money on coffee (or whatever) you can take steps to change that. I don’t mean you can never buy a coffee or a Coke again, but have a plan that includes spending that amount and don’t go over it in a month’s time.

If the idea of creating your own budget is overwhelming to you, you should know that budgeting help is available free of charge through a nonprofit credit counseling agency. Contact the Financial Counseling Association of America ( or the National Foundation for Credit Counseling ( to speak with a counselor who will guide you through the process of creating a livable budget.

Taking these steps will help you meet your monthly obligations in order to make your payments on time, every time. This will in turn, with time, increase your credit score.

Be wise with your credit!

See related: 5 things people fail to budget for


Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Expert Q&A

What that ‘free’ airline award ticket will cost you

We compare the airline fees typically found on tickets purchased with miles. It’s no surprise the rewards programs have stopped calling them ‘free’

See more stories
Credit Card Rate Report Updated: August 5th, 2020
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.