Bad credit can be confusing and frustrating to correct, as many people don't know what lowers their credit level. Often times, so-called credit improvement companies are nothing more than companies that offer assistance in declaring bankruptcy. Before you go through the red tape, simplify the process of improving credit with straight-talking government agency advice and consumer protection organizations. There are some basic steps to take to improve your credit significantly without spending extra money but rather spending money in the right way.
Get a Copy of Your Credit Report
Step 1
Request a copy of your credit report from all three of the national consumer reporting agencies Equifax, Experian and TransUnion. You are entitled to one free copy of your credit report per year. Request a copy by going to annualcreditreport.com and fill out the necessary information.
Step 2
Write to the consumer reporting company, detailing what information is incorrect on your report. Remember that it's free to dispute any items on your report. Include copies of any documents that support your argument and circle them in a copy of your report. Include your complete name and address and identify each item in your report you dispute. Be as clear as possible, state the reasons you are disputing the items on the report and ask that it be removed or corrected. Send your letter by certified mail, "return receipt requested," so you have evidence the consumer reporting company received it. Keep copies of your dispute letter and enclosures, which include copies of supporting documentation.
Step 3
Write the creditor, company or other information provider that you dispute an item, as well. Be sure to include copies of documents that support your argument. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it's required that it include a notice of your dispute. Should your dispute be founded, the creditor is not permitted to report you again. Keep copies of all correspondence in a file so you can access the information easily, and make copies to alert other companies and employers. You are legally entitled to ask the consumer reporting agencies to alert any entity that has accessed your credit within the last year.
Step 4
Design a sensible and realistic budget for your income and for your needs, not your wants. Make a commitment to stick to it for a certain amount of specified time, until economic expenditure becomes a habit. Setting small goals, like writing it down daily each time you spend money, including information on what, where and how much was spent, can go a long way toward eliminating superfluous costs and may surprise you. Often, we are not aware of how much we're spending, especially in hard economic times.
Tips and Warnings
- Just because you have a poor credit report does not mean you're not entitled to credit. Most creditors create their own standards and look at credit history in a similar fashion. Also, many creditors look at recent years only in evaluating you as a good or bad risk. It's a worthy exercise to contact your credit companies to discuss their credit standards and how they rate credit reports. Work out a payment plan with your creditors to pay off your debts. Most creditors provide a "hardship program" of sorts to accommodate those who are unable to make standard minimum payments. Many credit counseling organizations are nonprofit and work with you to solve your financial problems; don't assume that a nonprofit status is free, legitimate or even affordable. Research is your best friend, in this case. A lack of knowledge can actually increase your debt in this case, and make matters worse.
- When negative information in your report is correct, only time can fix the problem. The usual time for retaining negative credit information is seven years and bankruptcy information is retained for 10 years. Unpaid judgments against you can also be reported for seven years or until the statute of limitations expires, whichever is longer. In order to figure out the seven-year reporting period, start at the date the event took place. No time limit exists for a credit or life insurance application of more than $150,000, or a job that pays more than $75,000 per year. Criminal convictions also have no time limit as information that appears on your credit report. Beware of debt consolidation companies that offer quick fixes, as their interest rates actually charge you more, then wind up reducing your credit score. Also watch out for so-called "credit repair" companies, which are no more than lawyers looking to find a bankruptcy case.
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