Ways to Clean Up Your Credit

Cleaning up your credit is necessary if you plan on buying a home or borrowing money in the next few years. A low credit score means higher interest rates, and lenders may even deny you a loan. There are several things that you can do to change your credit score to help you qualify for a good mortgage or a better loan.

Pay Off Old Debt

One of the best ways to clean up your credit is to pay off past due debts. This means becoming current on all of your payments that you are making now as well as paying back loans that have gone into default. Creditors are willing to negotiate a lower payment amount if you are willing to make a lump sum payment. Generally this is about 50 percent of the debt. Once you have the money saved, call the creditor and offer the amount as settlement in full. If they are willing to accept the payment do not send the money until the creditor sends you a letter saying they will accept the amount paid as settlement of the debt.

Check Your Credit Report

Check your credit report at least once a year. This will allow you to dispute fraudulent charges or correct mistakes that may have been made. When you dispute a charge you need to contact both the credit bureau and the financial institution that have made the incorrect report. You may also need to file a police report if you have been a victim of identity theft. In the letter to the financial institution, explain the mistake and then request that it report the correction to the credit bureau.

Pay Down Your Debt

Another reason that your credit score may be low is because your debt-to-income ratio is too high. This can be fixed by paying down your debt. Stop using your credit cards and apply extra money toward your loans. Once you have lowered your debt-to-income ratio you will be in a better position to qualify for a good loan.

Establish a Good Payment History

Another way to improve your credit score is to establish a good payment history. Paying on time each month consistently will help to improve your debt score as well. This is particularly important if you have defaulted on loans in the past or declared bankruptcy. It is important to consider this as you take on new debt or use your credit cards. Do not borrow more than you can pay back each month.