Sometimes a long period of financial hardship can lead to a bad credit score. The first thing you want to do when you have bad credit is to repair your credit so you can qualify for the financing you will need to purchase a home or car in the future. Repairing bad credit takes time, but it is not as difficult as it may sound.
Take Care of Current Debt
The first step to repairing your credit is to make sure your current debt is under control. Consolidate your credit cards into one account by using a consolidation loan or transferring your balances to one low-interest credit account. Once you have consolidated your cards, stop using them. Pay off any old debts that may still be outstanding such as any old book club bills. Use cash as much as you can, and avoid applying for any new credit accounts.
Check Your Credit Reports
Keeping a close eye on your credit reports is essential to repairing your credit. There are many reputable services on the Internet that will help you obtain your credit reports from the three major credit-reporting agencies, but be aware that these services normally charge a monthly membership fee. You can also go directly to the credit-reporting agencies yourself and purchase your reports. The credit-reporting agencies you need to contact are Equifax, Experian and TransUnion. If you have been denied credit for any reason in the past 30 days, you are entitled to reports directly from the credit agencies at no cost. By federal law, you are entitled once a year to a free copy of your credit report from each of the three agencies.
Once you get your reports, check them for accuracy. Make sure each report has your current personal information correct, and also check all of your past information such as previous addresses and any aliases you have gone under. Be sure you recognize all of the credit accounts listed on your credit reports, and make sure the balances and histories are accurate. If you see anything on your credit reports that looks incorrect, follow the instructions on the report on how to report an inaccuracy. The credit-reporting agency will get back to you within 45 days of receiving your request.
Keep Money in the Bank
When you are repairing your credit. it helps to have money available in your savings and checking accounts at all times. It does not need to be a large amount of money--amounts less than or equal to $50 will work fine. Banks report your account activity to the credit-reporting agencies, and having a balance always available in your accounts can help to increase your credit score.
Don't Close Old Accounts
When you are in the process of repairing credit, it is a good idea to have accounts on your credit report that are old and still active. Normally, the advice would be to close a credit account once you have paid it off to have the available credit balance removed from your debt-to-income ratio, but when you are repairing credit it helps to have old credit accounts that are still active and still have a balance. This shows that you have the ability to maintain a credit account even while other parts of your credit history are experiencing problems.
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