Most people think that once a credit score is damaged, it is permanent. Fortunately, this is not the case. A credit score can recover significantly, even after a bankruptcy or default. Major credit events like a bankruptcy will be on a credit file for up to 10 years, but the overall number can still recover in just a few. With responsible spending, resolution of debts, and the use of new types of credit, a score can make a big jump. Here are 5 ways you can reduce debt and fix a bad score:

Find Errors on Your Credit File

Many credit reports contain errors that can significantly affect an individual’s credit. By checking your file once per year (at a site like annualcreditreport.com or creditkarma.com), you will be able to spot any errors which may reduce your number. Common errors include falsely reported defaults, double entries in a file, and a wrong name and address. If you do find errors on your report, you can dispute them by sending a letter to the bureau that made the mistake. A dispute letter would contain a copy of your credit report, with the offending mistake circled. The letter should explain why you believe it is an error and include copies of supporting documentation that would help your case. A dispute letter is not a guaranteed method of removing all mistakes from your file, but is the recommended way to fix these errors. (A sample letter to repair these errors can be found here)

A Credit Builder Loan

A “Credit Builder Loan” is a strategy used by credit unions for the sole purpose of establishing credit, or improving a low score. This loan is usually in the range of $300 to $500, and is repaid over a period of 3 to 6 months. The loan is placed in an interest bearing CD, which is held by the lender, until it is fully repaid. When the loan is paid back, the CD is released and can either be cashed or allowed to accumulate interest as a CD. Successfully handling this type of loan, shows financial responsibility, and can help repair your credit number.

Secured Credit Cards

A secured card may be the answer, if you are having trouble getting approved for a traditional credit card. These “pre-paid credit cards” are available to almost all U.S. citizens over the age of 18. Secured cards are used in exactly the same manner that unsecured cards are, but there are some differences. Secured cards work by drawing money from a pre-paid account. They are very easy to get approved for, because they present little to no risk to the issuer. These cards may come with more fees, than unsecured cards, but they are great options for people with poor credit. If you apply for a secured card, make sure that it reports all transactions to the three major credit bureaus. This is particularly important because with responsible use, a secured card can raise a poor credit score.

Paying Down Credit Card Debt

An outstanding credit card balance is a factor that can significantly lower your credit score. The amount of debt you carry, accounts for up to 30% of this score. By paying down debt, your number will tend to increase. Keeping old credit accounts open, (even when not in use) is important because the age of your accounts factor into your total score. Also, closing accounts can lower your “credit-to-debt ratio”. This ratio is made from the total amount of credit you have available, compared to the amount of credit in use.

Setting Up A Budget

In addition to taking the above steps to improve your credit, a budget should be created to lessen your chances of falling into debt. Once a monthly spending cap is in place, debt is less likely to accumulate. A spreadsheet is a good way to keep tabs on spending and debt. The website mint.com also has free tools to help you keep track of your spending. By reducing non-essential spending, your credit and debt problems will improve significantly. Using a monthly budget is great habit to get into, as it will help keep you out of financial trouble.

Ross manages a personal finance community at GreatCreditScore.org. This site contains information the economy, investing, credit, and debt.