How to Fix Bad Credit

Bad credit can be extremely restrictive and expensive for anyone. You may be denied loans or, if you’re lucky enough to be offered one, the APR will be an amount that makes your head spin. Especially in these tough economic times, it is important to repair your credit as soon as you can if it’s taken a hit. It will allow you to get approved for better, cheaper loans on cut-rate homes and other assets that will be relatively cheap as the real estate and stock markets bottom.

While there are many steps that you can take today to fix a bad credit report, it can take years to completely repair your credit score. Just as you didn’t go to bed with perfect credit and woke up with bad credit, you can’t go to bed with bad credit and wake up with good credit. Because it takes such a long time to rebuild your score, you need to get started today.

Use agencies to find out your credit score

The first step in fixing bad credit is to order your credit report. There are three major agencies that do credit reporting – Transunion, Experian, and Equifax. The information that is available in the reports varies from agency to agency, so it’s important that you get all three reports.

When you get the reports, go over them to make sure that there are no errors. If there are errors, contact your creditors and get them fixed immediately. Also look for accounts that are past due and in collection. For these accounts, contact your creditors immediately to work out negotiate your debt. You may be able to lower your APR, monthly payments, or even write off a portion of your debt, especially if you can pay in a lump sum.

Pay Down All Credit Cards

Paying down your credit cards is the most important aspect in restoring your good credit score. Revolving credit, the type of credit offered by credit cards, can be a double-edge sword. You need to have and use credit cards occasionally to build your credit score and credit history. But the percentage of revolving credit in use accounts for close to thirty percent of your credit score. If you’re using all your revolving credit, you credit score can go down by a few hundred points.

Because of this, you need to think hard before the next step, whether you want to try to work up the limits on your cards or consolidate your credit cards and close some credit accounts. If you close all your credit card accounts so that you only have $400 left due on a card with a $500 limit, your credit score will actually be worse than someone who owes $2000 on a card with a $10,000 limit because you’ve used a higher proportion of your available credit. On the opposite hand, however, too many open lines of credit can negatively impact your score.

Rescorers are credit reporting agencies that are an intermediary between the credit card service provider and the credit card service holder.  They are responsible for the correction process in your credit score.  Online agencies that claim to be rescoring services can help speed this process up by collecting proof of a mistake from the card holder and submitting it directly to the rescorer instead of the bank or other institution.  The rescorer then submits proof to the credit bureaus, speeding the whole process up.  These can be useful if your goal is to get a batter rate on a loan immediately.  Otherwise, the money that you spend on them may not be worth the amount you save by waiting a few weeks.

Make sure to pay all your bills on time. Late or no payments for bills can stay on your credit history for upwards of five years. If you’re not able to make payments now, its may be possible to use a debt consolidation service to combine your loans into a smaller, more manageable monthly payment.

However, the best medicine is always to eliminate the things that cause you to accumulate debt. Look for creative ways to save money and stop living outside your means. Always try to save some money each week from your paychecks so that when emergencies like medical expenses pop up, you are able to handle them and don't have to resort to high risk loans.

Finally, it is best not to close unused bank accounts when you’re trying to better your credit score.  Having more bank accounts is a positive for your credit score.  Closing down the bank accounts takes away this extra advantage for your score.