Cleaning a credit report means taking steps to improve your credit situation. Credit scores are used by lenders to decide whether to issue you a new loan and at what interest rate. You can typically review your credit scores for free from the major credit reporting agencies. Look over the reasons for a low score and develop a plan to improve your credit.
One of the best first steps in cleaning up your credit is to develop the discipline to make all future payments on time. Payment history makes up 35 percent of your FICO credit score. Paying on time helps you build a good history and avoid negative marks for late payments. Consider using an online calendar or reminder tool to remind you as the payment due date approaches.
Pay Extra Principal
If you can afford to make more than the minimum monthly payments on loans and credit cards, do so. This reduces your debt more quickly and improves your debt-to-credit limit ratio, which affects 30 percent of your FICO score. When you lower your debt in use, you lower your debt-to-limit ratio. Assume a card has a $5,000 limit. Paying that card from $2,500 down to $1,250 lowers your ratio from 50 percent to 25 percent, which boost that component of your score.
Avoid New Accounts
Some people open new credit card accounts thinking this will improve their debt-to-limit. While this may have some truth in time, financial experts usually advise against getting new credit when you are already in trouble. First, the inquiries on your application negatively affect the new credit and types of credit components of the FICO score. Each of these is worth 10 percent of your score. Plus, people tend to get lured in by the access to more credit and end up borrowing more money.
If your debt situation is extreme, you may want to contact your lenders about ways to consolidate or minimize your debt. A debt consolidation is one option if you can get a low-rate loan to pay off higher rate credit balances. Some credit card companies will agree to lower your interest rate or forgive portions of your debt in exchange for a guarantee of payment on the balance in a certain period of time. With just a few phone calls, you might improve your overall debt situation.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.