Can I Clean Up My Bad Credit?

Bad credit is never permanent. With time and strategy, you can improve your credit score and habits. The key to earning good credit is understanding how to responsibly use your credit accounts. Creditors seek borrowers who are low-risk, which means their debt remains low and manageable regardless of their financial circumstances.

Fair Credit Reporting Act

When cleaning up your credit, start with a careful review of your credit report. Information in your credit report isn't always correct. With the prevalence of identity theft, you may find unauthorized accounts or charges to accounts on your credit report. The Fair Credit Reporting Act states that consumers have the right to know what's in their credit report and dispute any incorrect information. Credit bureaus are required by law to remove any inaccuracies following a dispute.

Disputes

Disputing items on your credit report is a quick and easy process. You are entitled to a free credit report every year from each of the three dominant credit bureaus. Request a copy of your credit report online. Each credit bureau allows consumers to dispute items while viewing their online credit report. Creditors have 30 days to prove disputed information. If the credit bureau does not hear from the creditor within this timeframe or the creditor is unable to verify the information, it is removed from your credit report.

Boosting Your Score

Not all information included in your credit report is inaccurate. When you can't dispute information, improve your credit picture through proper credit management. Focus on the three major areas that affect your credit score the most: payment history, amounts owed and length of credit history. While there is no way to rush establishing the length of your credit history, keeping your balances low on credit accounts and paying your bills on time are two easy ways to boost your score each month. Low balances on both installment loans and revolving loans are essential. An installment loan includes a car or mortgage loan, while a revolving account is a credit or retail card. A balance of 30 percent or below your available credit limit is recommended for credit cards. Installment loans are paid down over time.

Additional Factors

Avoid applying for new credit accounts while improving your credit score. With bad credit, creditors already view you as a credit risk. Opening the door to get into deeper debt with new credit accounts only heightens your appearance of risk as a borrower. When measuring the length of your credit history, the date of last activity is also considered. Keep your existing accounts in use so that activity is reported each month on your accounts. However, the key is to charge small amounts and repay the balance in full before the end of your billing cycle. If you have mountains of debt already charged to your credit cards, tackle the card with the highest balance first then focus on the card with the next highest balance until all your cards are paid off.