All types of debt and credit missteps can get you in trouble. Some people fall victim to charging up credit cards, while others conveniently forget to put the check in the mail and go past due on bills. Regardless of the reason, a not-so-good or downright bad credit file often results from poor financial management. No matter how bad the situation seems, you can take steps toward improvement.
Get Your Credit Report
You need to know where you stand to properly begin the task of fixing your dismal credit report. Secure a free copy of your credit report from one or more of the three major credit reporting agencies, Equifax, Experian and TransUnion. Federal law entitles you to one free copy from each annually. Go to the Annual Credit Report website to request yours. If you want your credit score, you need to pay an additional fee directly to one of the credit bureaus when you retrieve your free report, as of January 2011.
Get Errors Corrected
Scour your credit report for errors. Sometimes bad credit -- or at least some of the problems -- ends up being somebody else's fault. All kinds of inaccuracies can appear ranging from the serious like somebody trying to steal your identity to the relatively mundane, yet erroneous reporting of a late credit card payment. In any case, when you view your report, follow the prompts to dispute errors. You can also write letters to the bureau; make sure to include any account numbers and your name and social security number. The appropriate credit bureau will get back to you after reviewing your request.
Stop Spending
It sounds obvious, but you've got to stop spending. If you have really bad credit, the upside of likely not being able to obtain new credit is that you won't run up any more debt. If, however, you have room to spend on credit cards, resist the urge. The percentage of credit used versus the income you bring in (debt-to-income ratio) is a major factor in determining your credit score.
Pay Down Debt on Time
Pay down as much of your debt as you possibly can. And don't be late. Two of the biggest factors holding back many borrowers' credit reports are high debt levels, particularly on credit cards and late payments. Focus on high interest rate debt first or use another method, such as hitting the largest or smallest balance first.
Pay More than the Minimum
When you pick a debt to tackle, pay more than the minimum. It doesn't have to be a credit card. If you have an overwhelming auto, student or personal loan holding you back, tackle it first. Make more than the minimum payment; credit cards illustrate the power of doing this best. If you make a $100 monthly minimum payment on a $5,000 balance at a 19.99 percent interest rate, it will take you just under nine years to bring the balance to zero. Just double the payment and you'll get ride of the debt in less than three years.
Pay off Old Debts
A key factor impacting your credit can be old delinquencies such as medical bills. Your credit report should have contact information for any old debt, so contact them and find out how you can resolve the old debt. It will then be marked as "Paid" on your report and will help rebuild your credit score.
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