Although cleaning up bad credit can sound like a difficult task, it’s really just a series of steps. Lots of companies claim that they can fix your bad credit, but you’ll have more control if you do it yourself. Follow along and learn some tips for building good credit.
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To start off, you’ll need to have a clear idea of what your credit report looks like now. If you haven’t already done so this year, head over to AnnualCreditReport.com to request your free credit reports from Equifax, Experian, and TransUnion, the three major credit bureaus. But if you want to see your FICO credit score as well, you’ll need to pay for it (check myFICO for this) unless you pull some strings (e.g. work with your financial institution to allow you access to your scores). Note that free credit scores exist, but they are typically proprietary in nature and are non-FICO scores. If you need to order your credit scores, here are some places where you can pick them up:
*Products marked “sale” already have an attached promo code so if you order through our links, you’ll receive the discounted price as specified.
For more information about monitoring your credit, check out our article called Equifax Credit Report and Score, where we review Equifax’s products. Also have a look at the article called Credit Monitoring Services, where we discuss services that help you regularly review, manage and monitor your credit information.
How To Build Good Credit and Clean Up Bad Credit
Here’s how to rebuild your credit in 7 steps:
1. Clean Up Errors on Your Credit Report
Once you have your reports, scan over the personal information, such as your address and employer info. If everything looks okay, then take a close look at your accounts. Are they listed with the proper information, and does it correctly reflect the payments you’ve made? Be sure to compare the three reports, because a creditor might report to one bureau and skip the other two.
In the event that you run across any errors or see traces of identity fraud, take steps to file a dispute with the credit bureau. Correcting your credit report can help clean up your credit.
2. Use Secured Credit Cards
One way to rebuild a good track record with credit is to sign up for a secured credit card. Your bank or credit union might be willing to issue you a card with a limit, based on the amount you deposit. Let’s say the bank asks for a deposit of $700; the secured card that they issue will thus have a limit of $700. By using the card and making payments on it, you can show a steady history. Besides your bank, you can also apply directly for these secured cards, as another option:
3. Take On A Reasonable Amount Of Debt
If you’re able to sign up for a department store card or some type of installment loan, you might be able to build good credit. These cards and loans can help you establish credit and develop your credit history.
4. Build Up Your Savings
Opening a high yield savings account at a bank or credit union is also a great move. For some people, having an emergency fund in a savings account like the one offered by HSBC Advance can stave off the problems that lead to too much credit use. For instance, $1,000 in savings would pay off my last medical bill, and it wouldn’t cost me 15% interest in the way a credit card would.
5. Repay Your Creditors
One of the most important strategies for cleaning up bad credit is simply to repay your creditors. If you’re behind on payments, it might be beneficial to call your creditors and ask for help. They may be able to accommodate you with a payment schedule that can fit your current budget. It’s imperative that you make your payments on time since you’re trying to establish that you’re responsible enough to take care of your debts. Also, try to pay more than the minimum if you can, because the less you pay, the longer you stay in debt.
If you’re using free online calendars or personal planners like Google Calendar or Remember the Milk, you can set up reminders to help you make those payments; I have set up alerts and reminders that are sent to me as text messages or via email, so I get them anywhere and at any time. Alternatively, you can try signing up for automatic payments — this has helped me pay my bills on time.
6. Look Into Credit Counseling
Establishing a budget can help you manage and repay your debts, but if you can’t stick to your budget, then you may want to consider credit counseling. The National Foundation for Credit Counseling can help you locate a counselor in your area.
7. Stay Clear of Credit Repair Scams
While credit counseling can be beneficial, it’s best to be wary of credit repair scams. In particular, you shouldn’t pay large fees upfront to a credit repair agency, and you should know your rights when it comes to repairing your credit.
Finally, ConsumersUnion.org points out that ultimately, you’re the only one who can change your credit. Fix errors on your credit reports, make regular payments on time, and use your credit cards and loans wisely — and you’ll eventually clean up your credit over time.