How do I Get Rid of a Bad Credit Rating?

Paying bills promptly is essential for the health of your credit.

Paying bills promptly is essential for the health of your credit.

Like many newlyweds, you and your spouse probably have dreams of owning your own home — or perhaps upgrading to a brand-new vehicle to accommodate a growing family. However, a steady joint income may not help you if a lender says "no" because of a bad credit rating on your credit reports. Your credit rating can take a tumble for a number of reasons. A history of slow or skipped payments and maxed-out credit limits account for a walloping 65 percent of your credit score. Then there are the credit rating killers — accounts that have been sent to collections and public records. The first step to getting rid of a bad credit rating is to determine how you can take action.

The Simple Fix

Step 1

Request copies of your credit reports from all three major credit reporting bureaus: Equifax, TransUnion and Experian. Each bureau reports different data and has a different method of credit scoring. Because you don't know which bureau prospective lenders will review, it's vital to make sure that all of your reports reflect a picture of good credit health. By law, you're entitled to a free copy of your credit reports once every year. You can order all three reports online.

Step 2

Give your credit reports the once-over. Highlight the items that reflect slow and missed payments, as well as credit card accounts that show you at or near your credit limit. Because these two areas account for a large percentage of your credit score, focus on areas you can improve. Examine your reports for negative data that's clearly erroneous. An example of a glaring error is a delinquent credit card account for which you never applied.

Step 3

Pay your bills on time. It really is that simple. A history of timely payments accounts for 35 percent of your credit score. If you tend to let bills languish on the counter until the last minute, set up an automatic draft through your bank to make sure they're paid on time each month. Even a payment that's as few as 30 days past due can affect your credit rating negatively. Getting payments up-to-date can increase your credit score in as little as one month.

Step 4

Pay down high credit card balances. Maxing out credit cards, as well as department store and gas cards, sends prospective lenders the message that you have too much unsecured debt that you might not be able to pay back. Financial experts suggest using only 10 to 30 percent of your available credit limit. Make sure that the amount you charge can be easily paid off by the time the bills come due.

Step 5

Don't go crazy with the credit card applications. If you authorize a prospective lender to perform a single credit check — known as a hard inquiry — this usually doesn't affect your credit rating. Nor is your score affected when you pull your credit reports. However, each additional lender inquiry can affect your score. Although hard inquiries, which make up 10 percent of your credit score, may not affect you much if you have a stable credit history, numerous inquiries can make your credit score take a dive if you haven't used credit very long or don't have many open accounts.

Correcting Errors

Step 1

Inform the credit bureaus of any errors in your reports. Put it in writing. Provide your name, address and a clear identification of what you feel is in error — as well as why. If you have documentation that supports your dispute, send a copy of this to the credit bureau along with your letter as well. Include a copy of your credit report with the disputed items underscored or highlighted.

Step 2

Notify the creditor that reported the erroneous data of your dispute as well.

Step 3

Document your paper trail. Make sure you have copies of everything you mailed the credit bureau in your own files. When mailing your dispute, send your correspondence certified mail, return receipt requested, so you have proof that the credit bureau received it.

Tip

  • After you dispute an error on your credit report, there's nothing to do but play the waiting game. It generally takes around 30 days after a bureau receives your dispute before they contact you regarding its decision regarding the erroneous data on your report.

Warning

  • You might not like negative items reflected in your report for which you bear responsibility, such as a record of an account that's gone to collections or a public record of a foreclosure or bankruptcy. However, there's nothing you can do to erase them. Only the passage of time can make this information drop off your report — typically seven years for most types of unpaid debt and 10 years for public records.

About the Author

Lisa Sefcik has been writing professionally since 1987. Her subject matter includes pet care, travel, consumer reviews, classical music and entertainment. She's worked as a policy analyst, news reporter and freelance writer/columnist for Cox Publications and numerous national print publications. Sefcik holds a paralegal certification as well as degrees in journalism and piano performance from the University of Texas at Austin.

Photo Credits

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