Pull your credit report
- The first step to cleaning up your credit is knowing what is out there. Go to all three credit agencies, Equifax, Experian and Trans Union, and pull your credit reports from each one. You may save money by getting a "tri-merge" credit report that pulls all three at one time.
Examine your credit report and report errors immediately to the credit agency. Many times, it is easier online than over the phone. The agencies are required by law to respond within 30 days.
Contact Your Debtors
- If you have negative credit on your report, such as judgments, liens, collections or late pays, contact each holder of that negative credit and work to get that line item off the report. Sometimes, it is as simple as paying the debt or showing you already have paid it. Other times, it becomes complicated enough that you need an attorney.
Most of the time, judgments, liens, collections and bankruptcies will not be taken off of your credit report for seven years. Yet, if you pay each one in full, the impact on your credit score is less than an outstanding, unpaid debt.
Pay Down Your Debt
- One of the biggest hits to your credit score is the amount of debt versus the available limit of the debt. If you have credit card debt, the smallest hit to your credit will occur when you have only used 35% of the available credit line. Additionally, when you first take out a loan and owe almost as much as the original balance of the loan, you will have a lower score, even if you are current on your debt. The longer you have had the debt, the better the impact on your score.
The Overall Goal
- The best credit scores go to those with a good "mix" of debt -- meaning that they do not just have credit card or mortgage debt. They have a number of different types of credit, used wisely and paid on time. Even if you are facing debt problems, you can restore your credit score if you have a solid plan to pay down what you have accrued.