For instance, you might find it hard to get a loan for a house or a car. Since utility companies check credit before turning on utilities, you might have to pay high security deposits to establish service. Even worse, bad credit could keep you from getting a job – many employers check credit as part of the application process.
How Bad Credit Happens
Nearly all the businesses you have a financial relationship with report information about your accounts to the major credit bureaus.These bureaus put the information together in a single file known as your credit report.
If you have a lot of negative information on your credit report, you are said to have “bad credit.” Negative information includes things like multiple applications for credit cards and loans, late payments, and high credit card balances. To improve your credit, you’ll have to fix the negative information that’s on your credit report.
Repair Credit Report Errors
Start by ordering your credit report. By law, you’re entitled to one free credit report every year from each of the major credit bureaus. You can order this free credit report from www.annualcreditreport.com. This is the only place to order the free credit report guaranteed by law. You can also purchase copies of your credit report from any of the three credit bureaus.
Once you have your credit report, look through each account and make sure the information reported is correct, e.g. the account is yours, the payment history is correct, etc. You have the right to have any errors removed from your credit report by submitting a credit report dispute to the credit bureau that provided the report.
Take Care of Delinquencies and High Balances
Note any delinquent accounts on your credit report. This includes accounts that have late payments, collection accounts, and charge-offs. To repair your credit, you need to bring these accounts out of delinquent status. You’ll need to pay them current to do this. Pay the outstanding balance on your late accounts. Bring them current first to keep them from getting charged-off or going to collections.
Try negotiating a settlement on collections and charged-off accounts. Note that the settled payment will be listed on your credit report for future creditors to see.
Next, bring your high balances down. Pay any accounts over the credit limit. This will keep you from getting charged over-the-limit fees. Then, work on paying your balances down to at least 30% of your credit limit. This means, you should have at most a $300 balance on a credit card with a $1,000 credit limit.
Keep Accounts Open, Minimize Applications, Make Timely Payments
Keep old credit cards open because this adds length to your credit history. The longer your credit history, the better your credit will be. Avoid closing your oldest credit card accounts. You should also keep open accounts with balances since closing them will hurt your credit score.
While you’re working on credit repair, don’t put in any applications for credit cards and loans. Each time you make one of these applications, it will affect your credit.
Finally, add positive payment history. Once you’ve taken care of the negative items on your credit report, positive information will continue to rebuild your credit.