Before lending you money, most creditors will examine your credit report. This report lists the payments and balances of your mortgage, car loan and credit card accounts as well as other vital facts that make up your credit score. Your credit score is an index of your credit rating, reflecting your likelihood to repay a loan. Delinquencies like late payments, bankruptcy, foreclosure and maxing out a credit card can negatively impact your credit rating. Fortunately, you can clean up your credit report and repair your credit rating by taking the right steps toward restoring your credit score.
Step 1
Order a free copy of your credit report for analysis. As of December 2004, the Federal Trade Commission ruled that all Americans may retrieve their credit report from each of the three leading credit reporting agencies (Equifax, Experian and TransUnion) at least once every 12 months for free. To obtain your report, go to AnnualCreditReport.com and follow the appropriate steps. In order to know how to fix your credit rating, you will need your credit report to see which delinquencies are affecting your record.
Step 2
Report any errors to each of the three credit bureaus. Occasionally, there may be a delinquency on your credit report that is actually an error. If you have proof, write a business letter to the credit reporting agency, or agencies, with the reported error along with a letter to the creditor or business associated with the error. By law, credit reporting agencies must respond to disputes within 30 days to comply with the Fair Credit Reporting Act.
Step 3
Set up automatic payments for all of your bills. A missed payment can lower your credit rating significantly. In contrast, consistently paying your bills off on time, according to a Jan. 29, 2008, "USA Today" article, will improve your credit score as late payment delinquencies move further into the past.
Step 4
Eliminate any outstanding debts. Using a high percentage of your credit line or keeping a high outstanding balance can hurt your credit rating. The "USA Today" article recommends utilizing no more than 10 percent of your credit line and paying off any debts whenever possible. This will improve how financially responsible you appear to credit reporting agencies and will repair your damaged credit rating.
Step 5
Limit the number of credit card accounts you have. Opening new accounts lowers your average age of credit and posts new inquiries, or credit checks, to your credit report. The longer you stick with the same credit cards and the less often your credit score is retrieved, the higher your credit rating will go.
Step 6
Give it time. Cleaning up your report and repairing your credit rating will not happen overnight. In fact, one website, Frugal Fun, warns that it can take up to seven years before credit reporting agencies have to remove a delinquency from your credit report. Nevertheless, any actions taken now will improve your score in spite of remaining delinquencies in less than a few months.
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