You may have seen ads for companies offering to clean up your credit. The truth is that you can do it yourself at little or no cost, but it takes diligent effort and patience. Expect to spend a lot of time combing over statements and credit reports, as well as disputing information when necessary. Afterward, you will need to improve your borrowing habits. However, the time and energy you expend will more than pay for itself.
Get Your Credit Report
If you haven't already received a free copy of your credit report within the last year, visit the annual credit report site. You are eligible to receive a copy of your report from each of the three credit bureaus: Experian, Transunion and Equifax. Your credit score is not included in these reports, but can be purchased through the credit bureaus when you receive your free credit reports. The myFICO site also makes your score available for a fee (or at no cost when you join its credit monitoring program).
Examine Your Credit Report
Check your credit reports for errors. These can include unreported balance payoffs, incorrect balances or payment amounts and negative items reported past the legal deadline (10 years for chapter 7 bankruptcies and 7 years for chapter 13 bankruptcies and most other delinquencies). Go over account statements to verify payment amounts, balances and payoff dates and check them against your credit reports. If you filed for bankruptcy, check for notations indicating that accounts were included or discharged in the bankruptcy where applicable.
Dispute Errors
Contact the credit bureau reporting the incorrect information. Each bureau has dispute instructions on its website, and the three credit bureaus may not report the same information. Allow 30 to 45 days for corrections to be made. If you are dissatisfied with the results of the dispute, you may add a statement to your credit report explaining why.
Debt-to-Credit Ratio
Lower your credit utilization ratio, or the ratio of current debt to available credit. Ask your lender for an increase in your credit limit, or start paying off your balance so you have more available credit. Try to keep your balance at 30 percent or less of of your credit limit. Home equity lines of credit, or HELOCs, do not affect your credit utilization ratio.
Rebuild Your Credit
Apply for credit sparingly. Avoid the temptation to snap up every offer in an attempt to rebuild your credit. You might think it will help your credit utilization ratio to take on new lines of credit. However, it may be unrealistic to plan to keep new credit cards only for "emergencies" and pay them off every month. Your credit report will also suffer from constant inquiries by potential creditors. Concentrate instead on paying off your current debt.
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