The Recession Has Ruined My Credit, What Can I Do?

From 2006 to 2009, 5.4 million more people entered the worst tier of borrowers -- called "sub-prime," according to Kathy Chu and Sandra Block of USA Today. Sub-prime borrowers either cannot acquire loans at all or they pay the highest rates the lender charges. While the sting of the "Great Recession" may last for years, you can rebuild your credit score within months.

Cleaning House

Review your budget and debt obligations. You must be able to meet your current debt obligations before moving onto more advanced credit repair tactics, such as taking out new loans, according to Tara Bernard of The New York Times. If you still have nagging credit card debt or cannot find a job, contact your creditors about a reprieve. The credit card company might agree to lower your interest rate or cancel some of your balance. Whatever the negotiation, get the creditor to agree in writing to report the account as "paid as agreed" to creditors.

Check Credit Reports

Rebuilding your credit score in general and fighting the effects of the recession share many of the same strategies. First, check your credit reports from Annual Credit Report, which is the only site to offer truly free credit histories. Your reports detail problem areas, such as missed payments and another major factor in bad credit -- errors. In the confusion of defaults and write-downs, your lender may accidentally report an account from someone else. You can dispute anything with bureaus -- creditors must report accurate information as well as verify an account -- but prepare your claim with evidence, such copies of your identification and account statements.

Open New Accounts

You must build new positive payment history to expedite your credit repair. Although most banks cut borrowers' limits in 2009 and 2010, some still want to extend credit to bad credit borrowers. Ideally, you should go after an unsecured card -- some lenders created credit card designed for people with low scores after the recession, so approval for these cards depends more on income than on credit history. If you cannot find an unsecured card, lenders usually offer a secured card, which requires a deposit on your credit limit and charges more in interest and fees than an unsecured card. Ask any potential creditor if it reports to all three national credit bureaus.

Warning

Creditors cut limits on millions of accounts, amounting to hundreds of billions of dollars in lost access to credit. Credit card companies target all demographics, even borrowers with low debt levels and good payment histories. If a creditor cut or cuts your limit, closing your account is the worst response for your credit score. The FICO score algorithm weighs your outstanding credit to total credit limit heavily. Closing an account raises your credit utilization, because you lose some available credit. Instead, pay down as much credit card debt as possible or ask the lender to reinstate your old credit limit.