Steps to Repair Bad Credit

1) Obtain Copies of Your Credit Reports & Score

Before you can fix bad credit, you've got to know exactly what your credit reports say about you. The only way to do that is get your report. One bureau is not sufficient enough....you must know what's on all three. When you apply for credit on a major purchase, such as a car loan or a mortgage, the lender will look at all three.

2)  Thoroughly Check Your Reports for Errors

Make sure everything on your report is actually yours. Look for any discrepancies in balances, dates opened/reported, the name of the creditor and so on. Make sure all the inquiries listed were actually initiated by you. Be sure the previous addresses and employment info are correct. It's estimated that 75% of credit reports contain at least one inaccuracy! Take notes.

3)  If You Find Errors In Personal Info or Hard Inquiries...

Contact the credit bureau to request correction or deletion. If you find an inquiry that's not yours, dispute it. Every inquiry counts, and too many can really drag your score down. When it comes to the list of previous addresses, you must keep in mind the bureaus are listing what addresses were provided by either you (on a credit application) or by one of your creditors. They are not likely to delete what you perceive to be errors, unless fraud was to blame and you have a police report. Mistakes in employment or social security number are more easily corrected.

4)  Validate Your Negative Debts

Send validation letters to your creditors. Be sure to keep meticulous records of your efforts, including copies of letters, dates sent and to whom. This is an important step. Not only can it eliminate a few bad debts (not a lot, though....it's not magic) but it opens the door to negotiations with your creditors. Debts that are clearly not yours or that are being reported incorrectly should be disputed directly with the credit bureaus. Need help putting it all together? We've designed a collection of effective letters for validating your debts and negotiating with your creditors. Put the breaks on those harassing phone calls, clean up your credit report and raise your fico score. Download the credit repair letters now and get started today!

5)  Negotiate With Your Creditors

Most creditors are willing to make concessions in order to receive payment on an overdue account. It is wise to negotiate for a complete deletion in trade for payment (not necessarily full payment, either.)  You can either send negotiation letters or if your ready, you can call your creditors. Just be sure to get deals in writing before you send any kind of payment!

A Word About Deletions....

During the deletion process, you will probably see a drop in your score. It's sounds nutty but it's the way the score modeling computes credit. Here are some examples:

Even though you've removed bad credit, that credit was old. Old accounts means more points on your score. The scoring model likes to see accounts that are at least 60 months. Sounds crazy, but it's true.

If you removed an account that was showing a zero balance, it changes your credit to debt ratio. Let's say you had 4 credit cards, one of which is the crappy one you got deleted. The other three are maxed out (meaning 100% of your credit used, 0% available) Before the deletion, you actually had 75% of your credit used, 25 % available. The scoring model likes to see less than 25% of your credit used, 75% available.

Removing various types of credit accounts that unbalance your credit report. The scoring model likes to see a variety of accounts (installment and revolving.) If you have nothing but credit cards (revolving) after you get an old negative car loan deleted (installment) it will hurt your score. More craziness.

Remember, look at the long term. There are no instant quick-fixes in building credit. It may seem like all your effort was a huge waste of time when you see your score drop, but it will come up so long as you follow the guidlines of the score modeling.

6) If Negotiations Fail....

It can be really frustrating to work so hard to straighten out your credit, only to hit a brick wall with a hard-ass creditor. There are some collectors out there that absolutely will not negotiate with you, and they would never dream of doing a deletion in trade for payment because "it would undermine the whole credit reporting process." Don't give up! You simply need to be persistent.

If the creditor has violated any laws in the collection process, and is being difficult with you, you may want to take them to court. Small claims court is always an option because the fees are nominal and you don't need a lawyer. I've heard of many cases settling before they even stepped foot in court, with the debtor seeking deletion in trade for dropping the lawsuit. But you've got to have hard evidence of a clear violation of the FDCPA or the FCRA. You may also want to rattle some cages by filing a barrage of complaints with various government agencies that handle credit issues and consumer protection.

7)  Don't Give Up!

Keep hammering at your creditors. Keep complaining to the bureaus, the government or anyone else who will listen. Your credit is important to you. In this day and age, having bad or no credit can even mean the difference between getting hired for a job or not. Take your future seriously and stay focused on your goals.

8) Start Building New Credit

Start out small, with a payment you can easily afford, no matter what. A secured credit card is a good idea. Another idea is to get a secured loan from your bank. See our section on building good credit for more tips and in-depth techniques.