The worst credit situations can be significantly improved if you take the following measures:

Pay off All Existing Debt

Paying off all your existing debt improves your credit score, but any delinquencies or collections are still noted on your credit report even if paid in full. Ideally, payment of all existing debt is the best solution if you have debt problems. However, most people who get in debt don’t have the means to simply write a check and become debt free overnight.

Make Timely Payments

Your recent credit history is very influential and staying up-to-date on your most recent accounts, even if you’ve had delinquencies in the past, will help improve your credit. It is important that you stay 100% current with any new debts, and don’t fall into the trap of using too much credit.

Get New Credit

One of the best ways to improve your credit is to obtain more credit. Over time, the new debt gives you an opportunity to show creditors that you can manage credit responsibly. If you have bad credit, it may be easier for you to be approved for secured credit cards or loans that require a cosigner. You must be careful not to fall into the trap of turning more credit into more debt, and pay the balance in full each month whenever possible. Obtaining new credit after a bankruptcy is relatively easy, and most debtors receive several solicitations from lenders as soon as their case is discharged. See “Life after Bankruptcy” section for detailed information on how to rebuild your credit after bankruptcy.

Your goal should be getting as many debts as possible to a zero balance, and from there you can start rebuilding your credit.

Save Money

Lenders look favorably towards you if you have assets that are readily available, like money in a savings account. Those assets can be used as collateral on a loan, and they show creditors that you have the ability to immediately repay a loan if necessary. You may also be able to obtain better rates by using the money you have saved for a down payment.

File Bankruptcy

Filing bankruptcy can hurt your credit in the short-term, but it can be the best way to improve your credit in the long run. Your goal should be getting as many debts as possible to a zero balance, and from there you can start rebuilding your credit. Chapter 7 bankruptcy eliminates many debts and your credit will get a “fresh-start” in as little as 4 months, and a Chapter 13 bankruptcy allows you to reorganize your debts and repay a portion of them over 3-5 years. Your dischargeable debts will have a zero balance after receiving a discharge in either a Chapter 13 or Chapter 7 bankruptcy. These zero balances can greatly improve your debt-to-income ratio, making you a better candidate for obtaining a loan.

If you have a lot of old “bad debt” or don’t have the income or assets to pay off your debts any time in the foreseeable future, bankruptcy may be your best solution. Most people with a verifiable income are able to obtain credit relatively easily after a bankruptcy, although the interest rates they are offered may initially be higher for a period of time after filing.