How to Improve Your Credit After Financial Trauma

There are many ways that cause people to fall into financial hardship, such as an unexpected medical bill, a sudden job loss or a case of fraud.

However, money problems can be caused by something more complex, such as financial trauma. Different from everyday short-term financial stressors, financial trauma is a long-term condition that stems from a past triggering event, such as a sudden loss of income. This can affect your self-perception and financial future and security.

If you experienced financial trauma, you may make bad money decisions, often resulting in bad credit. But there are ways to fix your credit while also healing your trauma.

[Read: Best Credit Cards for Bad Credit.]

What Is Financial Trauma?

Financial trauma commonly originates from an overpowering financial occurrence or having lived through heavy economic stress. This type of trauma “continues to have an overwhelming impact on one’s current day-to-day life, especially their overall financial health and relationship with money,” says Adrienne Golota, founder and psychotherapist at Embody Her in Detroit.

Those with financial trauma may show symptoms similar to post-traumatic stress disorder, like flashbacks, anxiety and negative thoughts. However, financial trauma isn’t an official psychological diagnosis.

Anything from financial insecurity to an economic crisis has the power to induce financial trauma. It can also be intergenerational as well, meaning issues with money can be passed down through generations.

“In order to understand what financial trauma is, there needs to be a distinction between trauma and general unhelpful beliefs, patterns and stress — since most of us have those in varying degrees,” she adds.

“It depends on the individual and how they feel,” says Doug Minor, founder and former president of Easy Credit Relief. “The (financial) emergency could be traumatic to some and not to others.”

Minor adds, “Just running up credit card debt in and of itself can cause some people stress, but ways of dealing with it can vary depending on the ability and feeling of the individual.”

Who Is Affected?

Financial trauma is not a rare condition. A 2023 survey released by Experian reports that 68% of U.S. adults feel they have suffered from or are currently suffering from financial trauma.

Some people experiencing financial anxiety could have inherited it through generational trauma. Generational trauma around money can stem from something as simple as inheriting your parents’ debt or something as complex as racial discrimination and poverty.

“While some people with financial trauma come from more affluent backgrounds, often it is the opposite,” says Golota.

[Read: Best Secured Credit Cards.]

How Does Financial Trauma Affect Your Credit?

You can begin working on improving your credit score once you know how financial trauma affects it.

Overspending. If you grew up poor, you may try to overcome that feeling of deprivation by overspending as an adult. And you may even avoid examining your finances because of the negative emotions it brings up. Spending extravagantly, like on vacations or shopping sprees, can send your credit score into the pits, especially if you’re using a credit card for these purchases.

Overspending with a credit card negatively impacts your credit utilization rate, which accounts for 30% of your credit score. This rate measures the percentage of your credit limit you are using. So, if you have a credit card account with a $10,000 limit and a $5,000 balance on the card, your credit utilization rate is 50%. You’re generally advised to keep credit utilization to 30% or lower. To improve your credit score, a ratio of 10% or less is even better.

Avoidance. If you have financial trauma, you may experience money avoidance. This means you may refuse to start a budget, open your bills or not spend money when it’s necessary. This avoidance can lead to overspending, late payments or increasing debt.

Payment history accounts for 35% of your FICO score, so your credit score will take a hit when you don’t pay your bills on time. And credit bureaus also look at the length of your credit history (15%) and credit mix (10%), so if you avoid financial matters, you won’t build a credit history or use varied credit products, such as credit cards, student loans or mortgages. Not seeking help. The Experian survey reported that a lack of discussion about money growing up and limited access to trustworthy information about finances were possible contributing factors to financial stress. More than half of respondents stated their family rarely or never spoke about finances.

“Many folks with financial trauma often lack financial literacy as well,” says Golota. “Without financial literacy, it is difficult to make healthy money decisions or know where to turn to learn how.”

This avoidance of asking for help will just continue to hurt your credit score.

“Financial trauma and illiteracy keep folks stuck in a cycle of survival versus thrival,” she says.

[READ: Best Credit Cards for No Credit.]

Four Ways to Increase Your Credit Score After Trauma

Working through financial trauma is not a simple task and improving your credit score while doing so requires patience.

Here are some strategies to help you begin:

1. Ask for help. You should not have to navigate financial trauma alone. Support can come from financial therapy — via professionals such as a psychologist or financial planner, or some combination — or trusted people in your life.

“Like all healing, everyone’s path to heal from financial trauma is different,” says Golota. “We are all at different starting places and have different short- and long-term goals when it comes to finances, so matching where you are at and where you want to go with what a professional offers is key.”

Once you recognize your trauma and how it affects you financially, you can begin tackling your credit score.

2. Get a secured credit card. If you don’t have a credit history due to financial avoidance, getting approved for a credit card can be challenging. “Starting with secured credit cards is a good way to get back in the use of credit cards without as many worries about missed payments since you put up money to start,” says Minor. With a secured credit card, your credit limit generally matches the amount — say, $200 to $1,000 — that you deposit with the issuer.

If you use the card responsibly, paying off your balance each month, you’ll be able to improve your credit score. When your score gets high enough, you can apply for an unsecured card.

3. Set boundaries. Someone with financial trauma may have trouble with setting boundaries when it comes to money. Boundaries can mean planning a budget and sticking to it, limiting how much you spend on what you want versus what you need.

When you reduce how much you spend, you can avoid falling into debt and crashing your credit score. Boundaries can set you up for financial success.

4. Track your credit. Financial trauma may make it difficult to face the reality of how your poor money decisions affected your credit. But if you avoid seeing your credit report or credit score, you won’t know what to work on to improve your financial standing.

You can get a free copy of your credit report each week at There are also credit-checking apps for your phone where you can easily access your score on the go.

More from U.S. News

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Women and Credit: A Look at the History

How Race Affects Your Credit Score

How to Improve Your Credit After Financial Trauma originally appeared on

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