A bad report puts you at a tremendous disadvantage in the world we live in. Fortunately there are ways to repair your credit history and relaunch yourself as a responsible consumer.
Your first step? Obtain copies of your report from the three major credit bureaus, TransUnion, Equifax and Experian. Review all items thoroughly. Is all the information correct and complete? Credit bureau databases are automated electronic systems. Mistakes happen all the time, and any mistake can provide grounds for successfully disputing an item.
Along with your history, the credit bureau should have sent you a form to fill out in case you want to dispute any of the items on the report. Make as many copies as you need to cover any items you’re disputing, and when you mail the forms to the bureaus, be sure to request return receipts so you have an accurate record of each communication you initiate with these ones.
The Fair Credit Reporting Act requires an investigation of any item on your credit report that you dispute. The credit bureaus only have a finite amount of time for this investigation. If an item can’t be verified within that time frame, then it must be erased from your files.
But cleaning up the negative items is only the first stage in rebuilding your scores. Next you must reestablish yourself as someone who knows how to use credit responsibly.
One of the best ways to do this is by taking out a small, secured loan backed by funds in a savings account. When the loan is repaid, you security deposit becomes your own again – and you have a positive mark on your credit report.
Next apply for a credit card. With a low credit rating, you may have a hard time receiving one from a major bank but you still have options. Department store charge cards and gas credit cards may be easier to obtain but in order to receive the maximum benefit to your rating never apply for more than two, never charge more than 20% of your credit limit, and always pay off the cards on time and in full.
Another option for the individual rebuilding his or her credit is a secured credit card which requires you to make a cash deposit as security against default. Generally the deposit will be 100% or 200% of your spending limit. The good news is that if you make your payments in a timely fashion, a secured card can often be converted into an unsecured card at the end of one year.
Finally there are those cards specifically designed for people with low credit scores. Be very careful using these. They often have extremely high interest rates and unexpected fees; if you find yourself in a situation where you can’t keep up with these, you may find yourself damaging your rating even further.