Bad credit can result from mismanagement of credit cards, bankruptcy, foreclosure or just not having any credit history. Although you cannot do anything to remove accurate negative information from your credit report before seven years have passed, or 10 in the case of bankruptcy, you can fix inaccurate information and start using credit responsibly going forward.
Correct Credit Report
If your bad credit is stemming from incorrect information on your credit report, dispute the errors to fix your credit. Identify errors by getting a free copy of your credit report from each credit bureau through the Annual Credit Report website. Initiate a dispute with each bureau that provided a credit report with inaccurate negative information. For example, if a collections agency is pursuing you to repay a debt that belongs to somebody else with the same name as you, dispute this account to get it off your credit report and boost your score.
Get a Credit Card
If your credit report contains accurate information, you will have to slowly boost your credit by putting positive information on your report. One of the best ways to do this is by using a credit card. If you do not have a card, apply for a secured credit card, which requires that you make a deposit with the lender to get an equal amount of available credit. These credit cards are designed for people who have made credit mistakes or who have not managed credit before.
Develop Positive Credit History
Focus on developing a consistent payment history on your credit cards and other obligations and keeping your debt low in relationship to your credit limits. MSN Money recommends using no more than 30 percent of your credit line at any given point in time. If you have a credit card on which you are using more than this, stop putting new purchases on the card and focus on paying more than the minimum until your balance is below 30 percent of the limit. Then spend lightly on the card and pay as much of the bill as you can each month to put positive credit history on your report.
Significance
If your credit score is bad, you will have trouble finding lenders who will approve your applications for credit cards and loans. You might not be able to get a mortgage, a car loan or a credit card, so you will have to pay for everything with cash and will likely be forced to rent or lease rather than buying large items. In addition, employers and insurance companies consider your credit score and can deny your applications or charge you higher rates if you have bad credit.
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