How to Repair a Bad Credit History

No matter how bad your credit is, you can take steps that will make it better.

Difficulty: Moderately challenging

Instructions

Things You'll Need:

• Financial Calculator
• Credit Counseling Services
• Credit Reports
• Secured Credit Cards

1. Pay all of your bills on time. Late payments (payments that are 30 days late or more) have a negative effect on your credit rating.

2. Reduce the number of credit cards you carry. Write to your creditors to request that they close your accounts and report this status change to all three credit-reporting agencies.

3. Avoid bankruptcies, tax liens (a lien for not paying state or federal income taxes or property taxes) and collections. A bankruptcy stays on your credit report for up to 10 years. Collection accounts and paid tax liens stay on for seven years, and unpaid tax liens will haunt you forever.

4. Request in writing that your creditors reduce the credit limits on your accounts to lower your amount of available credit. The total amount of available credit is considered by lenders even if you owe nothing.

5. Ask a family member or friend to co-sign on a small loan or credit card to help you re-establish credit. Make your payments on time.

6. Get a secured credit card to help reestablish your credit. You will have to keep a designated amount of money in an account that will be sufficient to cover your charges. Make payments on time.

7. Get a yearly copy of your credit report to catch any errors (see 'eHow to Obtain a Copy of Your Credit Report').

Tips & Warnings

• When you have a friend or relative co-sign on a loan or credit card, remember that that person's credit will be affected by the payment history as well.
• Credit-repair clinics and consumer credit agencies arrange repayment plans and restructure payments to fit your budget. But even if the creditor agrees to the plan, smaller payments and skipped payments can still be reported against you. Some credit-repair clinics charge up to $2,000 up front to get the paperwork started and cover administrative fees. Some CCAs are free. You can call the creditors yourself and make these same arrangements for free.

[helllllo]

on 6/7/2009 Regarding tip #2: Never, ever close a credit card account in good standing! It will DESTROY your credit rating instantaneously. When I was younger, I had a few credit cards I didn't use, so I thought closing the accounts would be wise to prevent a crook from stealing my account numbers and making unauthorized purchaces. Boy, was I wrong! Although I paid all my credit card bills on time and often in full, once I closed those accounts, my payment history didn't mean jack. Credit agencies and lenders look at the amount of debt you have in relation to your available credit, and the closer the ratio is to 1:1, they will view you as a big risk. That's what happened to me, and my credit rating went from very good to poor. As a matter of fact, when my husband and I refinanced our mortgage a few years ago, the bank had to remove my name from the loan because my credit rating was too low to qu...

[phillygta]

on 4/21/2009 Is it true that http://www.MyCreditEdit.com charges no money upfront for their credit repair service?

[chane]

on 11/30/2008 There is tons of misinformation and bad advice on this page and I would avoid it all together. Reading it makes me cringe.

on 8/8/2006 Dispute every negative item on all your reports, keep on disputing until the creditor removes it.

Dispute any late pays as "pays as agreed" or payment never late. If the creditor does not respond within 30 days, the bureaus are bound by law to remove the negative listing from your file and you file will read "pays as agreed" and "payment never late" which will turn a negative item into a positive one.

Keep the balance on all your credit cards, or revolving credit, under 25%. If possible, get the balance down to 0 at the time of the month the creditor reports to the bureau's. You can ask the creditors and they will usually tell you. This is huge and can impact your score up to 80 points.

If you don't have any credit cards, apply for 2 secured credit cards that report to the bureau's. Use them to buy a cup of coffee or some other small item once a month and pay the balance immediately. Make sure it has a 0 balance owed at the time its reported to the credit bureau's.

on 11/22/2005 Time heals all wounds. Repairing credit is not a job that can be rushed. I had a very low FICO score (low 400's). It has been 1 year of reestablishing myself. I now have a 600 score. It's not perfect, but it's not bad for a year's worth of work.

I opened installment accounts (2) with low balances but paid as agreed on time each month. I applied for two credit cards (someone finally gave me the opportunity to try again after 3 unsuccessful attempts) and pay them on time every month. The best suggestion that I can give, however, is to pay your bills on time! If possible do like myself and set everything up on automatic bill pay, where you know the bill will be paid on time each month. If you are not in a financial situation where you can set up automatic debit, and know the funds will be guaranteed available, then it is a good chance that you are not ready to manage credit until your finances are taken care of. Avoid using a lot of your available credit. It does impact your score. Another thing that helped my FICO score was all of the incorrect information on my credit score. I disputed misleading, false, or incorrect information and it had a dramatic affect on my score.