Having good credit is an important part of life. Without access to credit cards, it can be difficult to get the most out of your pay, and poor credit can make it next to impossible to make major purchases like a house or car. Unfortunately, there are no quick fixes for bad credit, but with a little effort you can clean up your credit over time.
Monitor Your Credit Report
The first step to cleaning up your credit is getting a clear picture of the situation. Under federal law, you're entitled to receive one free credit report each year from each of the major credit reporting agencies. Other situations, such as if you institute a fraud alert, entitle you to additional free copies. To get started, get your free report from each of the reporting agencies and check for inconsistencies or errors. If there is an error on your report, send a letter detailing the mistake.
Pay Bills on Time
Once you have a complete view your credit picture, set up a budget that will allow you to pay your bills on time. Late payments and delinquent accounts are a major drag on your credit. If you have accounts that are just 30 or 60 days overdue, make at least the minimum payment on these accounts to prevent them from becoming more delinquent, and then keep up with the payments. If you have accounts that are further overdue, you may need to contact the lender and see if you can negotiate a realistic minimum monthly payment that will allow you to keep the account current. Set up payment reminders so you don't forget.
Reduce Balances on Revolving Credit
When choosing where to direct the bulk of your resources, pay down revolving lines of credit first, such as traditional credit cards. Large balances in revolving credit have a greater impact on your credit score than balances in a fixed or secured credit account, such as a mortgage or car loan. Once you pay down your revolving credit balances, keep them low by not using the credit or paying off everything you charge each month.
Other Tips
Even if you aren't using some of your credit cards or other accounts, don't close them expecting a bump in your credit score. The amount of debt you're carrying is evaluated against how much total credit capacity you have, so closing unused accounts will make your balances look larger. Conversely, if you don't have a lot of credit cards, don't apply for new ones you don't need because adding new lines of credit in a short period of time will lower your credit score. Over time, making payments on time and lowering your balances will boost your credit. In the meantime, continue to monitor your credit reports regularly.
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