The Best Ways to Repair Bad Credit

Your credit score is made up of various factors in your financial history. The bulk of your score is based on payment history, total outstanding debts and the length you have had established credit. When you understand these factors and know your credit score, devising a plan to improve your credit is easier to accomplish.

Payment History

Start the process of credit repair by requesting your credit report to see what it includes. You can get a free report from freecreditreport.com. Your history of on-time payments makes up the largest percentage of your credit rating, about 35 percent. The definition of an on-time payment is that you have not been over 30 days late in paying a bill. When you exceed 30 days for making a payment, the creditor will often report this to the credit agency. Late payments stay on your report for seven years. However, the older the late payment the less impact it has on your rating.

If you feel there are errors on your report, send a written letter of dispute to the three credit reporting agencies--Experian, TransUnion and Equifax--and the creditor in question. Follow up written letters with a phone call to all three bureaus and the creditor and ask for removal of the item in dispute. If the creditor rules in your favor, it will send you a letter confirming the resolution.

Total Debts

Evaluate the total amount you owe and the ratio of unused credit on a particular card. Your goal should be to have a large amount on available credit that you don't have to use. Control this by paying down your credit card bills before using more credit or by using cash to make purchases.

Be aware of the impact on your credit when you have a credit card that is getting close to its limit. It is better to have a credit card with a limit of $5,000 that has a balance of $1,000 than to have a credit card limit of $1,500 with a balance of $1,000. The ratio on the second card is higher and can negatively impact your rating. If you can maintain a balance of less than 35 percent of your card limit, your credit rating will improve.

Current Accounts

The longer you have credit open, the higher your scores will be, so don't close old accounts. The credit formula works in your favor when accounts in good standing remain active. This doesn't mean that you need to use them; just keep them open.