Thursday, January 3, 2013

How To Cleaning Up Bad Credit

How To Cleaning Up Bad Credit
By Sabrina Ashley, eHow Contributor


Your credit history tells potential lenders about how well (or how poorly) you manage credit. A low credit score may not prevent you from getting a mortgage or a car loan, but it usually means higher interest rates and less favorable loan terms.

Cleaning up bad credit is important if you plan to make a major purchase such as a home or car. While you can't improve your credit in one day, there are steps you can take to get a better credit rating in a few weeks.

Credit Reporting Agencies

All of the information about your financial history, credit cards, loans, bankruptcies, tax liens, foreclosures and repossessions is on your credit reports. Experian, Equifax and TransUnion are the three credit reporting agencies that keep files on your credit history.

The U.S. government requires the three credit agencies to supply a free copy of your credit report each year. After you request your credit files from the agencies, check them for errors that may adverse affect your credit score. If you find incorrect information on the reports, contact the agencies in writing or by phone. Each agency must investigate your claim and remove any incorrect items.

If you have unfavorable, but accurate items on your file like a repossession or defaulted loan, you have a legal right to submit a short explanation that will become a permanent part of your credit file. When a lender looks at your credit report he will read your note. Such a note could prove useful in determining whether or not to give you credit and at what interest rate. There is no guarantee, of course, but it could help.

Ways to Clean Up Bad Credit

There are several things you can do to get a higher credit score. Pay all bills on time. A creditor can report late payments to the three credit agencies, which can lower your credit score. If you anticipate being late with a payment, contact the creditor before the money is due. This shows the creditor that you are aware of your responsibilities. Once you make the payment, ask that the creditor not to report the late payment.

Stop applying for more credit and pay off the credit card balances you already have as soon as you can. Applying for new credit or loans in a short period of time lowers your credit score. It is also a good idea not to consolidate all your loans.

One account with a high balance is seen as financially irresponsible. It is better to have the same balance spread over several accounts. The reason for this is that the ratio of balance to credit limit is better.
There are also legitimate credit counselors available.

Most of these credit counseling agencies are non-profits. These counselors can negotiate lower interest rates on your behalf. They can also help you create a budget and manage your spending better so you can prevent having bad credit in the future.

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